Dividend Decisions:
(i) Dividend is that portion of divisible profits that is distributed to the shareholders. It results in current income for the shareholders.
(ii) Dividend decision is to decide whether to distribute earnings to shareholders as dividends or to retain earnings to finance long-term projects of the firm.
(iii) The dividend decisions are taken keeping in view the overall objective of maximising shareholder's wealth.
Factors Affecting Dividend Decision:
(i) Amount of Earnings: Dividends are paid out of profits, so earning of a company is very important factor in determining dividend decision. Companies having high and stable earning could declare high rate of dividends or vice-versa.
(ii) Stability of Dividends: Companies generally follow the policy of stable dividend. The dividend per share is not altered in case increase in earnings is small or of temporary nature. Even big companies and financial institutions prefer to invest in a company with regular and stable dividend policy.
(iii) Growth Opportunities: In case there are good growth prospects for the company in the near future, then it will retain its earning and thus, no or less dividend will be declared.
(iv) Cash Flow Positions: The payment of dividends involve outflow of cash and thus, availability of adequate cash is required for declaration of dividends.
(v) Shareholders preference: While deciding about dividend the preference of shareholders is also taken into account. If shareholders desire for dividend then company may go for declaring the same.