dividen policy

companies that earn a profit can do one of the three things:pay that profit out to shareholders reinvest it in the business through expansion, debt reduction or share repurchase or both when a portion of the profit is paid out to the shareholders the payment is known as dividend. there is an ongoing debate about weather a company should pay out its earning as dividends or retain therm for firm growth. there is further debate about which policy investors proper. firms that are view and growing generally pay low or no dividends. mature firm that are no longer in a growth phase often pay high and increasing dividends. management must make a decision about retained as opposed to paid out as dividends the process of paying at "what's left" to shareholders in called dividend policy. dividend policy involves the decision to pay out earning versus retaining them for reinvestment in the firm any change in dividend policy has both favorable and unfavorable effects on the firm's stock price higher the dividends mean's higher the immediate cash flows to inventors which is good but lower future growth which is bad. the dividend policy should be optimal which balance the opposing forces and maximizes stock price.
dividend payments
management should try to maintain regular dividend. for regular dividend the firm will have sufficient earning management will set a lower regular dividend rate then firms with the same average earnings but less volatility. management may also declared extra dividends in years when earning are high and funds are available.
payment procedures
firms usually pay dividend on a quarterly basis in accordance with the following payment procedures:
1.declaration data: this is the day on which the board or directors declares the dividend. at the time they set the amount of the dividend to be paid the holder of record data,and the payment data.
2. holder if record date: this is the data the company opens the ownership books to determine who will receive the dividend. the stockholder of record on this data receive the dividend.
3. ex-dividend data: this data is four days prior to the record data. shares purchased after the ex-dividend data are not entitled to the dividend. only investors who hold the share prior to the ex-dividend data receive the dividend.
4. payment data: this is the day when dividend checks are actually mailed to the holders of record.