The dividend policy is the policy that facilitates the firm to decide how much should be declared as a dividend. The declaration of dividend is normally to be taken with reference to the future prospects of the firm. The dividends are normally decided by the board of directors during the board meeting which may affect other important decisions of the firm. Most of the companies never think off about the future prospects before the declaration of the dividends to the shareholders. As a finance manager should emphasize the importance of declaring or non declaring the dividends which are having greater influence on the futuristic decisions of the enterprise.
Types of dividend policies:
Cash Dividend Policy
The dividends are paid in terms of cash. This type of dividend normally leads to cash outflow which has greater influence on the cash position of the firm. At the moment of declaring the cash dividend, future cash needs should be predetermined and dividends declared to the share holders.
Bond Dividend Policy
Instead of paying dividend in terms of cash, some companies are issuing bond dividends, which facilitate them to postpone the immediate cash outflows. Immediately after the issuance of bonds, the bond holders are receiving the interest on their holdings besides the bond values to be paid on the due date. This method is not popular in India.
Property Dividend Policy
Instead of paying dividends in cash, some assets are given to the shareholders as dividend payments. This is also not existing in India.
Stock Dividend Policy
Instead of making the payment of cash dividend, the stock are issued to the existing shareholders. The company shares are issued to existing share holder which is known other words as stock dividends.
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