Dividend Policy
Dividend Policy
Dividend policy
Executive summary
Once a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a somewhat permanent dividend policy, which may in turn affect investors and perceptions of the company in the financial markets.
Objective
Dividend is a taxable payment declared by a company 's board of directors and given to its shareholders out of the company 's current or retained earnings. This coursework examines and investigates into the dividend policies adopted by companies listed on the London stock exchange and the factors that determine dividend policy.
Introduction
Firms use dividends as a mechanism for financial signaling to the outsiders regarding the stability and growth prospects of the firm. Secondly, dividends play an important role in a firm 's capital structure. Yet another set of studies have established the relationship between firm dividend and investment decisions. According to the "residual dividend" theory, a firm will pay dividends only if it does not have profitable investment opportunities, i.e., positive net present value projects
Methodology
Major theoretical and empirical papers on dividend policy are identified and reviewed. Critically discussed and compared dividend policies of three different companies.
Literature Review
The first empirical study of dividend policy was provided by Lintner (1956), who surveyed corporate managers to understand how they arrived at the dividend policy. Lintner found that an existing dividend rate forms a bench mark for the management. Companies’ management usually displayed a strong reluctance to reduce dividends. Lintner opined that managers usually have reasonably definitive target payout ratios over
Dividend policy
Executive summary
Once a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a somewhat permanent dividend policy, which may in turn affect investors and perceptions of the company in the financial markets.
Objective
Dividend is a taxable payment declared by a company 's board of directors and given to its shareholders out of the company 's current or retained earnings. This coursework examines and investigates into the dividend policies adopted by companies listed on the London stock exchange and the factors that determine dividend policy.
Introduction
Firms use dividends as a mechanism for financial signaling to the outsiders regarding the stability and growth prospects of the firm. Secondly, dividends play an important role in a firm 's capital structure. Yet another set of studies have established the relationship between firm dividend and investment decisions. According to the "residual dividend" theory, a firm will pay dividends only if it does not have profitable investment opportunities, i.e., positive net present value projects
Methodology
Major theoretical and empirical papers on dividend policy are identified and reviewed. Critically discussed and compared dividend policies of three different companies.
Literature Review
The first empirical study of dividend policy was provided by Lintner (1956), who surveyed corporate managers to understand how they arrived at the dividend policy. Lintner found that an existing dividend rate forms a bench mark for the management. Companies’ management usually displayed a strong reluctance to reduce dividends. Lintner opined that managers usually have reasonably definitive target payout ratios over
References: Brealey, R., and Myers, S. (2000) Brealey R A does dividend policy matter Irwin McGeaw-Hill. Principals of Corporate Finance, 7th Edition, (2002) N WoolridgeJ R and Ghosh C. Dividend cuts (1998) Web-sites: