dividend its types and factors that effect dividend

7/28/2019 Dividend Its Types and Factors That Effect Dividend

1/22

DIVIDENDITSTYPESAND

FACTORSTHATEFFECT

DIVIDENDDECISION

GROUPMEMBERS

SAKSHIGUPTA(45)

SAPNA(46)

SHARADGUPTA(47)

SHEFALISHARMA(48)

SHILPAGUPTA(49)

SHIPALIGUPTA(50)


2/22

INTRODUCTION

Dividendisaportionofthecompany'searningstobedistributedtoitsshareholders, based board of directors' decision. Dividends are

quoted as Dividend Per Share (DPS) or dividend yield. Most

companies having stable and secure growth offer dividends when

theirsharepricesbecomestagnant.Howeverseveralcompaniesdo

not offer dividends as all profits are reinvested to ensure faster,better-than-averagegrowth.

The board of directors decides the percentage of the profit to be

distributedasdividends.Dividendsare issuedquarterlyorannually,

andcompaniesarenotunderanyobligationtopaydividendseveryquarterandthecompanymaystoppayingdividendsatanypointof

time.But if thecompanystopspayingdividends itsmarketvalue is

affected,hencedividendsarepaidregularlyandevenifthereisno

increase in the dividend at least they will get dividends on a fairly

regularbasis.


3/22

We can understand the meaning and concept of dividend out ofthe definition given by the Income Tax Act, 1961 as follows - Anydistributionofaccumulatedprofits,whethercapitalisedornotifsuch distribution entails a release of the asset or part thereof.

Accumulatedprofits includeamountofdevelopmentrebatebutnot

depreciation reserves. They refer to book profits and not to

accumulatedincomeasshares,issuedbycapitalisingprofits,donot

involve any release of assets and do not constitute dividend.

Anydistributionofdebenturesdepositcertificatesandbonusshares

totheextentofaccumulatedprofitswhethercapitalisedornot.

Anydistributionuponliquidationtotheextentofaccumulatedprofitbeforeliquidation,whethercapitalisedornot.


4/22

Contd..

Any distribution of or reduction in capital to the extent of

accumulatedprofitwhethercapitalisedornot.

Anypaymentofasum,whetherpartoftheassetsorother

wise,bywayofadvanceor loantoan individualor forthe

individual benefit of a shareholder who has a substantial

interestinthecompany.

Distributionofrightstoacquiresharesinanothercompany,

thedividendbeingvaluedatthemarketvalueoftheshares.

Refundofcapitalbywayofreductioninsharecapitaltothe

extent of accumulated profits in the form of capitalised

reserves.


5/22

DEFINITIONS

According to the Supreme Court of India, Dividend is

theportionofprofitsofthecompanywhichisallocatedto

the holders of shares in the company.

Dividendsarethedistributionofacompany'sgainsovera fixed period of time to shareholders. This

disbursementofcapitalisdonesoundertheauthorityof

the board of directors. Dividends are issued on a per

sharebasisandiscalledaper share dividend.


6/22

Therearethreeimportantdividend-relateddates

Declarationdate,

DateofrecordandPaymentdate.

Declarationdate-Onthedeclarationdatethe

companyopensabookofliabilitiesintermsofthe

cashdividendsitowestotheshareholders,andonthisdateboththeotherdatesaredecidedand

declared.

Dateofrecord-Itindicatesthedividendsareonly

paidtoshareholderswhoaretheownersoftheshareonorbeforethedateofrecord.

Paymentdate-isthedatethedividendispaidout.


7/22


8/22

CASH DIVIDEND :

Paid out of a company's profits to the

owners of the business (i.e., the shareholders)..

Types:

Regular cash dividendcash payments made directly to

stockholders, usually each quarter

Extra Cash Dividendindication that the extra amountmay not be repeated in the future

Special cash dividendsimilar to extra dividend, but

definitely wont be repeated


9/22

STOCK DIVIDEND:

proportionate distribution of additional or bonus shares of

company's stock to owners of the common stock.

Also referred to as stock split.

Opted for a number of reasons

- inadequate cash on hand.- desire to lower the price of the stock on a per-share basis.

- increase liquidity.


10/22

PROPERTY DIVIDEND:

alternative to cash or stock dividends.

company may issue a non-monetary dividend to investors,

rather than making a cash or stock payment.

either include shares of a subsidiary company or physicalassets such as inventories that the company holds.

can be distributed if the parent company does not wish to

dilute its current share position or if it does not have enoughcash on hand to distribute healthy payments.


11/22

SCRIP DIVIDEND :

issued in case a company does not have sufficient funds toissue dividends in the near future.

It may take the form of -

(1) a promissory note discountable before its duedate, also called liability dividend, or

(2) common stock (ordinary shares)

reflecting capitalization of a part of reserves

(retained earnings), also calledcapitalization issue.


12/22

LIQUIDATING DIVIDEND:

type of payment made by a corporation to its shareholders

during its partial or full liquidation.

made from the company's capital base, and as a return ofcapital- this distinguishes a liquidating dividend from

regular dividends, which are issued from the company's

operating profits or retained earnings.

Also called liquidating distribution. liquidating dividends are considered a return of

shareholders' investments, rather than profit on them.


13/22

TYPESOFDIVIDEND

(1) Regular Dividend. By dividend we mean regular dividend paid annually, proposed by theboard of directors and approved by the shareholders in general meeting. It is also known as final dividend because it is usually paid after thefinalization of accounts. Sometimes, it is paid per share.(2) Interim Dividend. If Articles so permit, the directors may decide to pay dividend at any timebetween the two Annual General Meeting before finalizing the accounts. It is generally declared and paid when company has earned heavy profits

or abnormal profits during the year and directors which to pay the profits toshareholders. It is, an extra dividend paid during the year requiring no need of approvalof the Annual General Meeting. It is paid in cash.


14/22

DIVIDEND PAYMENT-RETENTIONDECISION


15/22

Afirmsdividenddecisionincludetwo

basiccomponents


16/22

Dividend Payout Ratio Theamountofdividendrelativetothecompanysnetincomeorearningspershare.Stability of DividendDividendstabilityisasimportanttoinvestorastheamountofdividendreceived.


17/22

INVESTMENT DECISION DEBT-EQUITY MIX

Largerdividend

LowProfitRetention

Heavyexternalfinancing

SmallDividend

HighProfitRetention

NegligibleExternalFinancing


18/22

FACTORSEFFECTINGDIVIDEND

PAYMENT

Stability of dividend

Nature of industry

Age of the company

Future financial requirement

Liquid resources

Requirement of institutional investors


19/22

Contd

TradeCycles

PastDividendRate

Governmentpolicies

TaxationPolicies

Legalrequirements


20/22

Contd

Abilitytoborrow

Policytocontrol

Repaymentofloans

Timeforpaymentofdividend

Regularityandstabilityindividend

payment


21/22

REFRENCES

FINANCIALMANAGEMENT:M.Y.KHAN

FINANCIALMANAGEMENT:I.M.PANDEY

FINANCIALMANAGEMENT:Principlesand

Applications

http://220.227.161.86/19347sm_sfm_finalne

w_cp4.pdf


22/22

dividend its types and factors that effect dividend

Documents