stability or regularity of dividends is considered as a desirable policy by the management of companies. most of the shareholders also perter stable dividends because all other things being the same stable dividends have a positive impact on the market price of the share . by stability we mean maintaining its position in relation to a trend live preferably one that is upward sloping. three of the commonly used dividend policies are:
1.constant dividend per share
constant dividend policy is based on the payment of a fixed rupee dividend in each period. a number of companies follow the policy of paying fixed amount per share as dividend every period, without considering the fluctuation in the earning of the company.this policy does not imply that the dividend per share or dividend rate will never be increased when the company reaches new level of earning and expects to maintain it the annual dividend per share may be increased. investors who have dividends as the only sources of their income prefer the constant dividend policy.
2. constant payout ration
the ration of dividend to earning is known as payout ration. when fixed percentage of earning is paid as dividend in every period, the policy is called constant payout ration. since earnings fluctuate, following this policy necessarily means that the rupee earned, and avoided when it incurs losses.
3. low regular dividends plus extras
the policy of paying a low regular dividend plus extras is a compromise between a stable dividend and a constant payout rate. such a policy give the firm flexibility, yet investors can count on receiving at least a minimum dividend. it is often followed by firms with relatively volatile earning from year to year. the low regular dividend can usually be maintain even when earning decline and extra dividends can be paid when excess funds are available.
1.constant dividend per share
constant dividend policy is based on the payment of a fixed rupee dividend in each period. a number of companies follow the policy of paying fixed amount per share as dividend every period, without considering the fluctuation in the earning of the company.this policy does not imply that the dividend per share or dividend rate will never be increased when the company reaches new level of earning and expects to maintain it the annual dividend per share may be increased. investors who have dividends as the only sources of their income prefer the constant dividend policy.
2. constant payout ration
the ration of dividend to earning is known as payout ration. when fixed percentage of earning is paid as dividend in every period, the policy is called constant payout ration. since earnings fluctuate, following this policy necessarily means that the rupee earned, and avoided when it incurs losses.
3. low regular dividends plus extras
the policy of paying a low regular dividend plus extras is a compromise between a stable dividend and a constant payout rate. such a policy give the firm flexibility, yet investors can count on receiving at least a minimum dividend. it is often followed by firms with relatively volatile earning from year to year. the low regular dividend can usually be maintain even when earning decline and extra dividends can be paid when excess funds are available.
No comments:
Post a Comment