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7/28/2019 Dividend Its Types and Factors That Effect Dividend
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DIVIDENDITSTYPESAND
FACTORSTHATEFFECT
DIVIDENDDECISION
GROUPMEMBERS
SAKSHIGUPTA(45)
SAPNA(46)
SHARADGUPTA(47)
SHEFALISHARMA(48)
SHILPAGUPTA(49)
SHIPALIGUPTA(50)
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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.
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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.
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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.
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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.
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Therearethreeimportantdividend-relateddates
Declarationdate,
DateofrecordandPaymentdate.
Declarationdate-Onthedeclarationdatethe
companyopensabookofliabilitiesintermsofthe
cashdividendsitowestotheshareholders,andonthisdateboththeotherdatesaredecidedand
declared.
Dateofrecord-Itindicatesthedividendsareonly
paidtoshareholderswhoaretheownersoftheshareonorbeforethedateofrecord.
Paymentdate-isthedatethedividendispaidout.
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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
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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.
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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.
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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.
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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.
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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.
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DIVIDEND PAYMENT-RETENTIONDECISION
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Afirmsdividenddecisionincludetwo
basiccomponents
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Dividend Payout Ratio Theamountofdividendrelativetothecompanysnetincomeorearningspershare.Stability of DividendDividendstabilityisasimportanttoinvestorastheamountofdividendreceived.
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INVESTMENT DECISION DEBT-EQUITY MIX
Largerdividend
LowProfitRetention
Heavyexternalfinancing
SmallDividend
HighProfitRetention
NegligibleExternalFinancing
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FACTORSEFFECTINGDIVIDEND
PAYMENT
Stability of dividend
Nature of industry
Age of the company
Future financial requirement
Liquid resources
Requirement of institutional investors
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Contd
TradeCycles
PastDividendRate
Governmentpolicies
TaxationPolicies
Legalrequirements
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Contd
Abilitytoborrow
Policytocontrol
Repaymentofloans
Timeforpaymentofdividend
Regularityandstabilityindividend
payment
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REFRENCES
FINANCIALMANAGEMENT:M.Y.KHAN
FINANCIALMANAGEMENT:I.M.PANDEY
FINANCIALMANAGEMENT:Principlesand
Applications
http://220.227.161.86/19347sm_sfm_finalne
w_cp4.pdf
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