Explain the factors affecting the dividend decision.
Answers
SOLUTION :
The factors affecting the dividend decisions are as follows :
AMOUNT OF EARNINGS :
Dividend are paid out of current or past earnings. The companies having strong amount of earnings can afford high amount of dividends. If a company has weak position of earnings, such company prefer to pay less amount to divided.
STABILITY OF EARNINGS :
If other things remain constant the companies having stable earnings can afford high amount of dividends whereas the companies having fluctuate earnings prefer to pay low dividend.
STABILITY OF DIVIDENDS :
Normally the companies prefer to follow stable dividend policy. Companies increase the rate of divided when they are confident of high amount of earnings . With low increase or decrease in the earnings, company does not prefer to change the rate of dividend.
GROWTH OPPORTUNITIES :
If a company has growth plans for the future they prefer to pay less amount of dividend to invest in the growth prospects. The companies having no such plans do not mind to pay higher dividend.
CASH FLOW POSITION :
For the payment of dividend , a company needs to have strong or enough cash resources. Companies with higher amount of profits may declare higher dividends but for the payment, they need to have strong cash position.
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Answer:
Explanation:
For the payment of dividend , a company needs to have strong or enough cash resources. Companies with higher amount of profits may declare higher dividends but for the payment, they need to have strong cash position.