4 types of dividend policy

There are basically 4 types of dividend policy. Let us discuss them on by one:

1.) Regular dividend policy: in this type of dividend policy the investors get dividend at usual rate. Here the investors are generally retired persons or weaker section of the society who want to get regular income. This type of dividend payment can be maintained only if the company has regular earning.

Merits of Regular dividend policy:

  • It helps in creating confidence among the shareholders.
  • It stabilizes the market value of shares.
  • It helps in marinating the goodwill of the company.
  • It helps in giving regular income to the shareholders.

2) Stable dividend policy: here the payment of certain sum of money is regularly paid to the shareholders. It is of three types:

a) Constant dividend per share: here reserve fund is created to pay fixed amount of dividend in the year when the earning of the company is not enough. It is suitable for the firms having stable earning.

b) Constant pay out ratio: it means the payment of fixed percentage of earning as dividend every year.

c) Stable rupee dividend + extra dividend: it means the payment of low dividend per share constantly + extra dividend in the year when the company earns high profit.

 Merits of stable dividend policy:

  • It helps in creating confidence among the shareholders.
  • It stabilizes the market value of shares.
  • It helps in marinating the goodwill of the company.
  • It helps in giving regular income to the shareholders.

3) Irregular dividend: as the name suggests here the company does not pay regular dividend to the shareholders. The company uses this practice due to following reasons:

  • Due to uncertain earning of the company.
  • Due to lack of liquid resources.
  • The company sometime afraid of giving regular dividend.
  • Due to not so much successful business.

4) No dividend: the company may use this type of dividend policy due to requirement of funds for the growth of the company or for the working capital requirement.

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2 Responses to 4 types of dividend policy

  1. balkishan says:

    REALLY USEFUL

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