Question
In: Finance
1. What is the element of dividend pay out to the stakeholder?
1. What is the element of dividend pay out to the stakeholder?
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Expert Solution
Meaning
Dividend pay out represents the part of the earnings of the company paid out in cash to shareholders. A dividend payout ratio implies portion of dividend paid out every $100 of the earnings. The other part of the earnings not paid in dividend is called retained earnings or Retention ratio.
Thus, a dividend pay out of 60% implies that out of the total earnings of the company, 60% was paid to shareholders and 40% is retained in business.
Significance
Element of divident payout and its significance to shareholders is dependent on the liquidity needs of the shareholder. Those investing for dividends requires a higher dividend payout ratio and those investing for capital gain preffer to have their earnings retained.
Again, investors in lower tax slabs prefer regular dividends or higher dividend payout ratio compared to those in higher tax slabs.
Thus significane of the element of dividend payout changes from one group of shareholder to other group depending on their needs and other utilities.
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