Question

7. List a number of factors that influence dividend policy in practice?

Answer 1

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Answer:

Factors affecting the dividend policy are:

Profitability of the firm

A higher profitable organization will have a greater capacity to pay dividends than an organization with lesser profits having conservative policy

LIQUIDITY of the firm

It has a direct correlation with the dividend policy. Profits blocked in working capital will have lesser liquidity and hence pay only lower dividends

Leverage of the firm

A higher leverage firm will have higher interest payments and hence a lower dividend payout ratios.

Government policies

Changes in dividend policy proposed by the government like temporary restrictions on paying of dividends may have an impact on the dividends paid by the company

Reinvestment opportunities

A company having profitable ventures will retain the earnings and have a direct impact on the dividend policies