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Factors Affecting Dividend Policy
The economic soundness of a company is generally judged by the amount of dividend declared and paid by a company. It affects its goodwill among the shareholders and the prospective share holders.


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Dividend is apart of profits distributed among the shareholders. The basic question before the Board of directors is how much profits should be divided among shareholders as dividend and how much to be retained in the business as reserves to meet the future contingencies and for expansion of business. Both-future expansion and distribution of dividend are desirable but in conflict. Hence, allocation of earnings between dividends and retained earnings is an essential part of management functions, it requires a sound dividend policy to be followed by the corporation According to Weston and Brigham “Dividend policy determines the division of earnings between payments to shareholders and retained earnings”. In this connection, the dividend declared during previous years may be taken as a base and the same rate is followed in the coming years. Generally, Board of Directors aim at maintaining the dividend rate which we may call a “Stable Dividend Policy”. For its purpose a 'dividend equalization fund' is created out of profits to equalize the profits of the coming years.

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