Types of Dividend policy

There are several types of dividend policies that a company may adopt:

Stable Dividend Policy: Under this policy, a company pays a fixed amount of dividend per share on a regular basis. This policy is usually adopted by companies that have a stable and predictable income stream.

Constant Payout Ratio Policy: In this policy, a company pays a fixed percentage of its earnings as dividends. This means that the amount of dividend paid varies with the company’s earnings. If the company’s earnings increase, the dividend amount also increases, and vice versa.

Residual Dividend Policy: This policy states that a company pays dividends only after funding all its capital expenditure, working capital requirements, and other investment needs. This policy is usually followed by growth-oriented companies that require a lot of capital for expansion.

Low Regular Dividend with Special Dividend Policy: Under this policy, a company pays a low regular dividend per share on a regular basis, and in addition, may also pay a special dividend from time to time. This policy is usually followed by companies that have a cyclical income stream.

No Dividend Policy: Some companies may decide not to pay dividends at all and instead reinvest their earnings back into the business for future growth.

The choice of dividend policy depends on various factors such as the company’s growth stage, profitability, cash flow, and financing needs. It is important for companies to strike a balance between paying dividends and retaining earnings for future growth.