Dividend Policy

What are the practical considerations which are likely to influence a firm's dividend policy? Does a firm's dividend policy matter?

Inside a firm's dividend policy there are a number of different factors that will have an impact upon: the amount and if one will be paid to shareholders. The most notable include: the growth rate of the company, credit agreements, earnings stability, maintaining control over the float, uncertainty, the ability of the company to receive financing from outside sources, financial leverage, age / size and possible tax consequences.

The Growth Rate of the Company

As far as the growth rate of the company is concerned, this will influence a firm's dividend policy by: requiring that a larger portion of their funds are used to support new opportunities in the future. This is because many growing companies may be in industries that are so new that it is not...
[ View Full Essay]