The factor affecting the dividend decision are:
(i) Stability of dividends: Companies generally follow the practice of stabilising their dividends. This is an important factor that affects the dividend decision of a company. Companies try to avoid frequent fluctuations in dividend per share and opt for increasing (or decreasing) the value only when there is a consistent rise (or fall) in their earnings. This is worst case of dividend because even if earning increase dividend per share remain same.
(ii) Preference of the shareholders: A company must keep in mind the preferences of the shareholders while distributing the dividends. For instance, if the shareholders prefer at least a certain amount of dividend, then the company is likely to declare the same.
(iii) Legal constraints: Companies have to adhere to the rules and policies laid out by the Companies Act. Thus, every company needs to take care of such restrictions and policies before declaring the dividends.
(iv) Access to capital market: The companies that have a greater access to the capital market tend to pay higher dividends. This is because they can rely less on retained earnings and more on other sources due to the market access. On the other hand, the smaller companies with lower access to capital markets tend to pay lower dividends.