dividend

CORE JAVADividend By- Sonali

BBA/13/913

May 1, 2023

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Dividend| CONFIDENTIAL 2015

Meaning

The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders.

It is the reward of the shareholders for investments made by them in the shares of the company.

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May 1, 2023Dividend| CONFIDENTIAL 2015

Determination of Dividend

Checking the levels of profits. Determination of rate of dividend. Verification of liquid assets. Forecasting future needs. Adequacy of reserves. In case of surplus profits.

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Introduction to Dividend Policy

The dividend policy of a firm determines what proportion of earnings is paid to shareholders by way of dividends and what proportion is ploughed back in the firm for reinvestment purposes. If a firm’s capital budgeting decision is independent of its dividend policy, a higher dividend payment will call for a greater dependence on external financing. Thus, the dividend policy has a bearing on the choice of financing. On the other hand, firm’s capital budgeting decision is dependent on its dividend decision; a higher dividend payment will cause shrinkage of its capital budget and vice versa. In such case, the dividend policy has a bearing on the capital budgeting decision.

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Meaning of Dividend Policy

Dividend policy refers to the policy that the management

formulates in regard to earnings for distribution as dividend

among shareholders. It is not merely concerned with dividends

to be paid in one year, but is concerned with the continuous

course of action to be followed over a period of several years.

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Goals of Dividend Policy

Dividend policy should be analysed in terms of its effect on the value of the company

Investment by the company in new profitable opportunities creates value and when a company foregoes an attractive investment, shareholders incur an opportunity loss

Dividend, investment and financing decisions are interdependent. Dividend decisions should not be treated as a short-run residual decision A workable compromise is to treat dividends as a long-run residual to avoid

undesirable variations in payout. This needs financial planning over a fairly long time horizon

Dividend policy should be communicated clearly to investors who may then take their decisions in terms of their own preferences and needs

Frequent changes in dividends should be avoided

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Payment of Dividend

• Statutory Provisions: Payment after deducting depreciation Transfer to reserve: amount transferred to reserves cannot exceed 10%

of the profits, in any situation, unless it is specially allowed by the central government.

Payment of dividend only in cash No payment of dividend out of capital Dividend in proportion to paid-up capital Payment of dividend to registered shareholders Payment of dividend within 30 days

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Provision of Table “A”

The company can declare dividends only in a general meeting Rate of dividend should not exceed the rate recommended by the BOD

If the directors deem it fit, the BOD may declare interim dividends,

during the year Before declaring dividends, the directors of the company may transfer

a part of the profits to reserves. This amount can be invested outside company. Dividend should be paid in proportion to paid-up capital No notice should be sent of dividend declared If the amount remains payable on account of dividend than the

company shall not pay any interest on that amount

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Interim Dividend

The dividend which is declared by the directors during the continuance of the financial year is known as interim dividend.

The directors of the company are entitled to declare interim dividends provided there are sufficient profits in the company. After the declaration of interim dividend by the directors, the dividend which is finally approved by the company in the AGM is Called the final dividend

Statutory provisions regarding Interim dividend The BOD may declare the I-Dividend and its amount shall be

deposited in a separate bank account within five days from the date of declaration of such dividend.

This deposited amount should be used only for the payment of I –Dividend

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CORE JAVAAny QuestionMay 1, 2023

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Dividend| CONFIDENTIAL 2015

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