Today is: 3, December 2023
"Teachers open the door... You enter by yourself." - a Chinese proverb
Today is: 3, December 2023
Welcome Dear Romita. Start typing , do not use the template. Gita
(: Dear Romita. You have made great progress. Keep up the good work and we will soon be able to certify you a WikiMaster Warm regards --Patricia 03:44, 13 January 2009 (UTC))
Hello all! I am Romita Popli, Lecturer in Commerce, teaching in Gargi College, University of Delhi.
Gargi is a well known scholar of the Vedic period with exemplary intellect and supreme spiritual attainment. Gargi College is a constituent college of Delhi University with a mission that every student who passes through the portals of the college emerges as a wholly developed individual symbolizing the spirit of enterprise and inquiry that characterizes Gargi.
Gargi College has been adjudged as University Grants Commission (UGC) Certified College with a Potential for Excellence.
Gargi College hosts its annual cultural festival REVERIE. This year it was held on 19th, 20th and 21st November 2008. The theme for this year's festival was "Myriad of Colours" and the whole college was vibrant with colours showcasing the theme of the event.
Why I joined WikiEducator?
"It took approximately seven hundred years for mankind to realize that if potter's wheel were to be placed vertically, it could be used as a cart wheel. The speed of progress is directly linked to the speed of innovation." - Anonymous
I am very happy using WikiEducator that has replaced the classroom's black board, computer and internet that have replaced the chalk and duster.
Let's talk something about DIVIDENDS
Owners of the corporate business organisations get rewarded in the form of dividends. Dividend is the return on the investment of shareholders in companies. Dividend decision refers to the quantum of profits to be distributed as dividend among the shareholders. It involves the decision to pay out earnings to the shareholders or to retain them for reinvestment in the firm.
Since dividends are distributed out of profits, an alternative to the payment of dividends is the retention of earnings. The retained earnings constitute an easily accessible important source of financing the investment requirements of the firm. There is a reciprocal relationship between retained earnings and cash dividends i.e. larger retentions mean lesser dividends whereas smaller retentions imply larger dividends. Thus, the alternative uses of net earnings- dividends and retained earnings- are competitive and conflicting.
The amount of dividend payable to the shareholders depends upon the kind of dividend policy being pursued by the company. Dividend policy is the determination of the proportion of profits paid out to shareholders usually periodically. It refers to some kind of a consistent approach to the decision involving distribution versus retention of the profits rather than making the decision on a purely ad-hoc basis from year to year. It is also concerned with the question of “when” and “how much” dividend should be paid.
Sound dividend decision-making is important for any company as it influences its share prices in the market, maximises its shareholders’ welfare and enhances its reputation in the market. Thus, companies generally prefer to follow a consistent dividend policy.
Thus, dividend is something that is divided amongst the shareholders of a company. A company that pays regular dividend becomes an attractive investment destination. Higher the amount of dividend paid by a company, greater is the incentive on the part of investors to save and invest. The only restriction that the law places upon company’s right to declare dividend is that only profits must be distributed by way of dividend and the only restriction upon working out profits is that depreciation must be provided for and that previous losses must be made up. In order to maintain consistency of payment by way of dividend, compulsory reserves are required to be created and permission granted to take out portions of it for distribution in rainy season. This freedom is a legislative and judicial blessing to the corporate sector. The only restriction as to depreciation is an expression of the requirement of law that assets must be maintained for the benefit of creditors and not given away to shareholders on the pretext of dividends.
Dividend may also be viewed as a residual. An important question in dividend policy is whether dividends have an influence on the value of the firm, given its investment decision. If dividends are irrelevant as postulated by Modigliani and Miller, the firm should retain earnings only if it has profitable investment opportunities. Dividends should only be paid when the firm has financed all its positive Net Present Value (NPV) projects. Once the firm has provided funds for all the projects which more than cover the minimum required return, investors should be given the residual. Dividends would be larger in years of high cash flow and few investment opportunities, and will be reduced when the need for reinvestment is high relative to internally generated cash flow.
Many young rapidly growing firms with a need for investment finance have a very low dividend (or zero) payout, whereas mature “cash cow” type firms choose a high payout rate.
Dividend paid by a company is a result of interplay of various factors. The level of current earnings of the company, the pattern of dividend paid by it in the past, investment demand of the company, availability of external finance, the cost of debt financing and shareholders’ preferences are some of the important factors that should be considered while deciding on the current dividend to be paid to the shareholders.
Dividends are very popular because of psychological reasons. Regular dividends are more predictable and give shareholders a greater feeling of confidence. If the universe of a company’s potential shareholders is risk averse, a company can signal superiority as an investment option over other companies by offering dividends. Moreover, some institutional investors are limited to investing predominantly in dividend paying stocks.