Www.mbaknol.com Types of Dividend Policies. www.mbaknol.com 1) Policy of No Immediate Dividend 2) Stable Dividend Policy 3) Regular Dividend plus Extra.

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Presentation transcript:

Types of Dividend Policies

1) Policy of No Immediate Dividend 2) Stable Dividend Policy 3) Regular Dividend plus Extra Dividend Policy 4) Irregular Dividend Policy 5) Regular Stock Dividend Policy 6) Regular Dividend plus Stock Dividend Policy 7) Liberal Dividend Policy

1.Policy of No Immediate Dividend. Management keep profits for its own growth. Company should grow fast and expand big. Fails in long time run. Generally followed by distribution of bonus shares. Rarely used policy in today's market.

2.Regular or Stable Dividend Policy. Paying regular amount of dividend every year. Raises prestige and credit of the company in market. Helps in raising long term finance in future. Price of the shares will remain high. Share holders remain happy.

3.Regular Dividend plus Extra Dividend policy. Regular Dividend(RD) + Extra Dividend(ED) is paid. Policy adopted when company has earned extra points(profits). Policy is removed when earnings are normal. System not found in India.

4.Irregular Dividend Policy. Company doesn’t pay fixed dividend regularly. Changes yearly depending on the earnings. Used by firms having unstable earnings especially in luxury goods.

5.Regular Stock Dividend Policy. Firm pays dividend in form of shares instead of cash for some years regularly. Applied when firms face liquidity crunch. Not advisable in long term because numbers of shares will increase every year and earning per share will decrease. Affects adversely to company's credit and share value.

6.Regular Dividend plus Stock Dividend Policy. Cash + Shares(Stock) = Complete Dividend. Policy is Justified when a) Firm wants to maintain its Regular Dividend Policy b) Wants to retains cash for Expansion. Firm wants give benefits of its earnings to shareholders but lacks liquidity Limitations of Regular Dividend Stock Policy applicable.

7.Liberal Dividend Policy. Major part of earnings is given to shareholders and minimum is retained by the firm. Rate or Amount of Dividend in not fixed. Higher the profit, Higher the dividend.