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As a Finance Manager what is your role in matters of
dividend policy. What will be the alternatives and factors
that you may consider before finalizing your dividend
policy?
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Answer Posted / deepika
The disposal of the earnings is an issue of fundamental
importance in financial management. The financial manager
plays a key role in advising the management, i.e., Board of
Directors regarding the decision. It is the latter whose
privilege it is to take the decision. The retention of
profits in business helps the company in mobilizing funds
for expansion.
The dividend policy, particularly the timing of the
declaration of dividend, influences the market value of a
company's shares. The financial manager, therefore, should
be well informed about the capital market trends and the tax
policies of the government, besides the rationale behind the
investment program of the company.
The dividend alternatives available to finance manager while
deciding the dividend decision are listed below:
· Regular Dividend: If the company gives dividend every year
right from the initial year of operation, it is called
regular dividend.
· Stable Dividend: Whether equal amount or a fixed % of
dividend paid every year, irrespective of the quantum of
earnings as in case of preference shares, i.e., stable dividend.
· Fixed Payout Ratio: When a fix payout ratio is decided on
the total of earning available is called fixed payout ratio.
· Bonus Shares or Property Dividend: In this case, the
company issues bonus shares.
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