Question

. The Sisodia Ltd. is a fast-growing manufacturing firm. It earns above industry return on its investment. It has been earning a rate in excess of 25 per cent on its investments in the past and has good prospects of earnings at the same rate in future as well. The Sisodia Ltd. has been following a dividend policy of paying 70 per cent of the earnings to shareholders and retaining 30 per cent. This dividend policy is justified on the grounds that the sole objective of a company is to pay dividends and that dividends have a positive impact upon the price of the share. If most of the company’s shareholders are young wealthy persons in high tax brackets, is the current dividend policy of the company justified?

Answer 1

Answer:

लफफरठश्रठ ठदठ ठदठ ठदठ ठदठ ठदठ ठदठ ठदठ डदठश्रडदबड दबंग दंड ड

Answer 2

YES, the current dividend policy of the company is justified.

Dividend income is taxable but it is taxed in different ways depending on the the dividends are qualified or not qualified.

Dividend policy.

• A dividend policy is the policy a company uses to structure its dividend payout to shareholders.

• It communicates your company's financial strength and value, creates goodwill among shareholders, and drives demand for stocks.

• Under the firm policy, companies may create a target payout ratio, which is a percentage of earnings that is to be paid to shareholders in the long-term.

• The dividend payout amount is typically determined through forecasting long-term earnings and calculating a percentage of earnings to be paid out.

QUALIFIED DIVIDEND

" Qualified dividends are generally dividends from shares in domestic corporations and certain qualified foreign corporations which you have held for at least a specified minimum period of time, known as a holding period "

Qualified income are taxable at the rate of 20% according to the provisions of Income tax act.

NOT QUALIFIED DIVIDEND

" A nonqualified dividend is one that doesn't meet IRS requirements to qualify for a lower tax rate "

The tax rate on nonqualified dividends is the same as your regular income tax slabs.