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40 Things Every Dividend Investor Should Know About Dividend Investing

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[AN EMPIRICAL STUDY OF CORPORATE DIVIDEND POLICY]
1
N R Institute of Business Management
CHAPTER -1
DIVIEND POLICY- THE MECHANISAM

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[AN EMPIRICAL STUDY OF CORPORATE DIVIDEND POLICY]
2
N R Institute of Business Management
1.1 Introduction
Dividends are payments made by a corporation to its shareholder members. It is the portion of
corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that
money can be put to two uses: it can either be re-invested in the business (called retained
earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion
of their earnings and pay the remainder as a dividend.
For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore, a
shareholder receives a dividend in proportion to their shareholding. For the joint stock company,
paying dividends is not an expense; rather, it is the division of an asset among shareholders.
Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any
time, sometimes called a special dividend to distinguish it from a regular one.
Cooperatives, on the other hand, allocate dividends according to members' activity, so their
dividends are often considered to be a pre-tax expense.
Dividends are usually settled on a cash basis, store credits (common among retail consumers'
cooperatives) and shares in the company (either newly-created shares or existing shares bought
in the market.) Further, many public companies offer dividend reinvestment plans, which
automatically use the cash dividend to purchase additional shares for the shareholder.
Several factors must be considered when establishing a firm’s dividend policy. These include
The liquidity position of the firm just because a firm has income doesn’t mean that
it has any cash to pay dividends.
Need to repay debt oftentimes there are negative covenants that restrict the
dividends that can be paid as long as the debt is outstanding.
The rate of asset expansion the greater the rate of expansion of the firm, the greater
the need to retain earnings to finance the expansion.

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 CHAPTER -1 DIVIEND POLICY- THE MECHANISAM 1.1 Introduction Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend. For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. For the joint stock company, paying dividends is not an expense; rather, it is the division of an asset among shareholders. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from a regular one. Cooperatives, on the other hand, allocate dividends according to members' activity, so their dividends are often considered to be a pre-tax expense. Dividends are usually settled on a cash basis, store credits (common among retail consumers' cooperatives) and shares in the company (either newly-created shares or existing shares bought in the market.) Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder. Several factors must be ...
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