Determinants Of Dividend Policy

Dividend Policy refers to the policy concerning quantum of profits to be distributed as dividend. The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders. It is the reward of the shareholders for investments made by them in the share of the company. The investors are interested in earning the maximum return on their investments and to maximize their wealth. A company, on the other hand, needs to provide funds to finance its long-term growth. Dividend Policy of a firm thus affects both the long-term financing and the wealth of shareholders. As a result, the firm's decision to pay dividends must be reached in such a manner so as to equitably apportion the distributed profits and retained earnings. Since dividend is a right of shareholders to participate in the profits and surplus of the company for their investment in the share capital of the company, they should receive fair amount of the profits. The company should, therefore, distribute a reasonable amount as dividends to its members and retain the rest for its growth and survival.