1. Stability of dividends: Every company adopts the policy of maintaining the stability of dividend per share. (Here the stability of dividend means that the dividend will, in no case, be allowed to fall. It is always good if the dividend remains stable or increases.) From this point of view, a little change in profit should not be allowed any increase or decrease in the dividend.

2. Shareholders’ preference: There are two types of shareholders from the point of view of investment:

(i) those who invest with the purpose of getting some regular income and

(ii) those who invest in the company to gain capital profit. If the majority of the shareholders are of the former type, the company must declare dividend according to their expectation. On the contrary, if the majority of the shareholders are of the latter type the company enjoys freedom about declaring dividend.

3. Access to capital market: In case of need if a company can easily collect finance in the capital market, it should declare dividend at a higher rate otherwise not.

4. Legal constraints: The dividend policy of a company should always remain confined within the limits provided by law. According to the legal provisions, a company cannot make payment of dividend out of paid-up share capital because it will reduce the capital which will adversely affect the security of the debt providers. Therefore, it should be kept in mind that the dividend is not being paid out of the capital. According to Article 205 of the Company Law, dividend can be paid out of the current year’s profit or the profits of the previous years after taking into consideration the provisions made for depreciation.