Distribution of Dividends Essay Example | Topics and Well Written Essays - 1750 words

Distribution of Dividends - Essay ExampleMoreover, we will discuss practical examples of companies that give dividends and purchase their own divvy ups. Similarly, the process of determining the disbursement of dividends is discussed in this paper.In an organization sh be holders are of utmost importance because they buyout the shares of the company and certain affairs of the company are carried out because of share holders. Therefore, organizations call in care of their shareholders by giving them dividends. The profit of the company is either reinvested in the company or the share holders are given dividends. Usually, shareholders receive dividends with respect to their share holding in the company. However, giving dividends to the shareholders is a critical method and it is considered as the core conclusion making element of the company (Madura, 2008). Proper brainstorming and decision making capabilities is essential for in this process because through dividends shareholders are motivated more to invest in the company. There are certain forms of giving the dividends standardized dividends are distributed on cash basis and they are known as cash dividends. These dividends are distributed through checks and these are taxable in the recipient in the year when they are actually paid. Certain dividends are distributed in the form of additional shares and in certain cases dividends are given in the form of situation and they are known as property dividends. However, the distribution process is base on certain characteristics and it is one of the crucial decisions for the top hierarchy of an organization. Divided polity of the organization is considered to be an important element in determining the distribution of dividends. This polity revolves around the idea of payout earnings versus retaining and then reinvesting them. The dividend policy includes certain factors like How frequent the company would pay dividends What are stable or irregular dividends What is high or low dividend payoutInvestor preferences and theories of dividend policy Dividends are paid to the shareholders in rewrite to keep them attached and interested with the company. Usually, there are three theories of dividend policy these areDividend irrelevancyBird in the hand Tax preference Dividend irrelevanceThis theory is widely used in the process of distributing dividends. However, this policy arises that the investors are indifferent between the phenomenon of dividends and retention-generated capital gains. Investors have the tendency to create their own policy that if they want cash they can sell their stocks (Mishkin & Eakins, 2008). Similarly, if they dont want cash then they can use dividends to buy the stock. This model was proposed by Modigliani and Miller but it was based on unrealistic assumptions. The core aspect of this theory is that investors are not concerned about the company policy on dividends because they have the choice of marketing portfol io of equities if they are interested in having cash. The issuance of dividends should have negligible or no impact on the stock price. Bird-in-the-hand theory Investors think that the dividends of the company are less risky as compared to the future capital gains, therefore they prefer dividends.