(a) Dividend decision 

(b) Factors affecting Dividend Decision 

(1) Stability Earnings :

A company having stable earnings can declare higher dividends. Otherwise, pay lower dividend.

(2) Stability of Dividends :

Companies generally follow a policy of stabilising dividend per share. Dividend per share is not altered if the change in earnings is small.

(3) Growth Opportunities:

Companies having good growth opportunities retain more money out of their earnings to finance the required investment. In such a case, they can declare dividend at a lower rate.

(4) Cash Flow Positions :

Availability of enough cash in the company is necessary for declaration of dividend.

(5) Shareholders’ Preference :

While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard.

(6) Taxation Policy :

A company is required to pay tax on dividend declared by it. If tax on dividend is higher, company will prefer to pay less by way of dividends whereas if tax rates are lower, then more dividends can be declared by the company.

(7) Capital Market:

Reputed companies have easy access to the capital market and, therefore, they can pay higher dividends than the smaller companies

(8) Legal Constraints:

The companies Act has laid down certain restrictions regarding payment of dividend. No dividend can be paid out of capital.