What factors do firms consider when establishing a dividend policy?

What factors do firms consider when establishing a dividend policy?

Solutions

Expert Solution

Factors firms consider when establishing dividend policy
1. Retained earnings: If the company can invest the retained earnings with higher ROE then the company may delay its dividend payment.
2. Stability in earnings. If the earnings are stable or growing the firm will payout dividend regularly.
3. Liquidity position: If the liquidity of the firm is not good the company may not payout dividends even if the retained earnings are high.
4. Financing needs of firm: Retained earnings also act as source of funding such like common shares. If the company feeds it needs to change it capital structure for better performance it might use retained earnings for funding projects.
5. Positive signal to the market: The Company may payout dividend to send a positive signal to the market about the company’s performance and to build trust among the shareholders.
6. Legal factors: The dividend policy may be designed to adhere to legal terms of the country in which it is operating

Best of Luck. God Bless

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Discuss the key factors a corporation must consider when establishing its dividend policy. How does a...

Discuss the key factors a corporation must consider when establishing its dividend policy. How does a company decide whether cash dividends, stock dividends, stock repurchases, or no dividends at all are the appropriate course of action? Why might investors prefer one of these options over others?

What are some drawbacks to following a strict residual dividend policy? What do firms typically do...

What are some drawbacks to following a strict residual dividend policy? What do firms typically do in practice? Please explain thoroughly.

What are the factors a firm should consider when developing its distribution policy and explain the...

What are the factors a firm should consider when developing its distribution policy and explain the importance of each factor and why?

When you design functional foods, what factors do you consider? (list factors no explanation)

Case Study: Establishing General Access Company’s Dividend Policy and Initial Dividend General Access Company (GAC) is...

Case Study: Establishing General Access Company’s Dividend Policy and Initial Dividend General Access Company (GAC) is a fast-growing internet access provider that initially went public in early 2003. Its revenue growth and profitability have steadily risen since the firm’s inception in late 2001. GAC’s growth has been financed through the initial common stock offering, the sale of bonds in 2006, and the retention of earnings. Due to its rapid growth in revenue and profits with only short-term earnings declines, GAC’s...

Compare and contrast share dividend with cash dividend used by firms in their payout policy.

What are regulatory requirements and other factors that accountants should consider when setting up accounting policy...

What are regulatory requirements and other factors that accountants should consider when setting up accounting policy relating to inventory for the entities they work for? (JB Hi-Fi)

What is the importance of a firm’s dividend policy? Please explain. Identify the factors that influence...

What is the importance of a firm’s dividend policy? Please explain. Identify the factors that influence the firm’s dividend decision. Be specific. Identify, compare, and contrast the major dividend theories that are discussed in your textbook. Be specific.

Analyse the ANZ's dividend policy. Should the company follow a progressive dividend policy? Critically evaluate factors...

Analyse the ANZ's dividend policy. Should the company follow a progressive dividend policy? Critically evaluate factors that are affecting corporate dividend policy and how your company's dividend policy may have influenced its capital structure and share price.

What do you consider to be the most effective approach to establishing and enforcing standards for...

What do you consider to be the most effective approach to establishing and enforcing standards for health information? Who should be involved in the standards development process and to what extent? Explain your reasoning.

Subjects