• Dividend is a part of profit of a company which is distributed among its shareholders. Dividend is a return to shareholders on their investment.
• As per the Companies Act, dividends can be paid in cash or cheque on paid-up capital of share. The finance manager has to tactfully decide what part of profit should be distributed as dividend and what part of profit should be retained in business. Retained earnings in business are an important internal source of finance.
• Payment of dividend affects the market value of share of the company. If a major portion of profit is distributed as dividend, it decreases the ploughing back of profit. On the other hand, if a major portion of profit is reinvested then less amount is left for distributing dividend.

Factors affecting dividend:

• Divisible profit of the company during the current financial year
• Estimation of income in future
• Rate of dividend paid by the company in the past years
• Need of ploughing back of profit in business
• Financial condition and financial needs of company at present
• Ratio of reserves with company
• Future planning of profitable investment
• Attitude of directors of company
• Taxation policy
• Legal restrictions
• Expectation of shareholders of the company
• Condition of capital market
• Growth rate of company
• Liquidity position of the company