DISSERTATION REPORT ON

A STUDY ON DIVIDEND POLICY OF SECTOR FIRMS

IN INDIA
Submitted in the partial fulfillment of the requirements for the
degree

MASTER OF BUSINESS ADMINISTRATION(MBA)

(2014-2016)

AMITY GLOBAL BUSINESS SCHOOL,CHANDIGARH

FACULTY GUIDE
Prof.Neha Gupta
SUBMITTED BY
Meenakshi Luthra
(A30701914066)

MBA(2014-2016)

DECLARATION

I Meenakshi luthra , herby declare that all the

information furnished in this PROJECT,is my
original work containing authentic facts.This piece
of work is only being submitted to AMITY GLOBAL
BUSINESS SCHOOL, CHANDIGARH in the partial
fulfillment for the degree of Post Graduation
Diploma in Business Management.

ACKNOWELEGMENT
Iwould like to express my heartful thanks to my
people. Thos dissertation is an effort to contribute
towards achieving the desrird objectives. In doing
so, I have optimized all available resuorse and
made use of of some external resourses, the
interplay of which, over a period of time,led to the
attainment of the set goals.
I take here a great opportunity to express my
sincere and deep sense of gratitude of my
esteemed Mrs. Neha gupta for giving help &it was
extremely valuable.
I also express my sincere thanks to all trhe people
who, directly or indirectly, contributerd in time
,energy and knowledge to this effoert.

Table of content

DIVIDEND POLICY

ACKNOWLEGEMENT

MEANING OF DIVIDEND
The term dividend refers to that portion of profit,
which is distributed among the
owners/shareholders of the firm.

INTRODUCTION TO DIVIDEND POLICY

The dividend policy of a firm determines what
proportion of earnings is paid to shareholders
by way of dividends and what proportion is
ploughed back in the firm for reinvestment
purposes. If a firms capital budgeting decision is
independent of its dividend policy, a higher
dividend payment will call for a greater
dependence on external financing. Thus, the
dividend
policy has a bearing on the choice of financing. On
the other hand, firms capital budgeting
decision is dependent on its dividend decision; a
higher dividend payment will cause
shrinkage of its capital budget and vice versa. In
such case, the dividend policy has a bearing

on the capital budgeting decision.

Dividend Policy refers to the explicit or implicit
decision of the Board of Directors regarding
the amount of residual earnings (past or present)
that should be distributed to the shareholders
of the corporation. This decision is considered a
financing decision because the profits of the
corporation are an important source of financing
available to the firm .

FACTORS AFFECTING DIVIDEND

POLICY
1. OWNERSHIP CONSIDERATIONS- Where
ownership is concentrated in few people there are
no
problems in identifying ownership interests.
However where ownership is decentralised on a
wide
spectrum the identification of their interests
becomes difficult. Further the influence of
stockholders
interests on dividend decision becomes uncertain.

2. FIRM ORIENTED CONSIDERATIONS-Ownership

interests alone may not determine
the dividend policy. A firms needs are also an
important consideration which includes the
following:
Liquidity, credit sharing and working capital
Needs of funds for immediate and future
expansion
Availability of external capital
3. NATURE OF BUSINESS -This is an important
determinant of dividend policy of a
company. Companies with unstable earnings adopt
dividend policies which are different from
those which have steady earnings. Consumer
goods industries usually suffer less from
uncertainties of income and hence pay dividends
with greater regularity than the capital
goods industries. Industries with stable income are
in a position to formulate consistent
dividend policies. Thus public utilities may be able
to establish a relatively fixed dividend
rate.

4.ATTITUDES AND OBJECTIVES OF MANAGEMENT The attitude of the

management affects the dividend policies of a
corporation in another way. The stockholders
who control the management of the company may
be interested in empire building. In such a
case company with the objective of expanding the
business may retain a larger portion of
profit and declare less dividend to shareholders.
5.COMPOSITION OF SHARE HOLDING-There may be
marked variations in dividend
policies on account of the variations in the
composition of shareholding. The tax burden on
business corporations is a determining factor. The
directors of closely held companies may
take into consideration the effect of dividend upon
the tax position of their shareholders. On
the other hand the shareholders of the large and
widely held company may be interested in
high dividend payouts.
6. INVESTMNET OPPORTUNITIES-Many companies
retain the earnings to facilitate

planned expansion. Companies with low credit

ratings may feel that they may not be able to
sell their securities for rising necessary finance
they would need for future expansion. So,
they adopt a policy for retaining large portion of
earnings.
7. DESIRE FOR FINANCIAL SOLVENCY AND
LIQUIDITY-Companies may desire to
build up reserves by retaining their earnings which
enable them to weather deficit years or the
downswings cycle. Cash credit limits, working
capital needs, capital expenditure
commitments, repayment of long-term debts etc.
influence the dividend division.
8. REGULARITY-A company may decide about
dividends on the basis of its current
earnings which according to its thinking may
provide the best index of what a company can
pay, even though large variations in earnings and
consequently in dividends may be observed
from year to year. They may use past profits to pay
dividends as more important than

anything else. Regularly in dividends cultivates an

investment attitude rather than a
speculative one toward the shares of a company.
9.RESTICTIONS BY FINANCIAL INSTITUTIONSSometimes financial institutins which grant longterm loans to corporations put a clause
restricting payment till the loans or a substancial
part of it is repaid.
10.INFALTION-Inflation is also a factor which may
effect a firms dividend decision. In
period of inflation, funds generated from
depreciation may not be adequate to replace worn
out equipment. Under these circumstances, the
firm has to depend upon retained earnings of
funds to make up for the shortfall. This is particular
relevance if the assets have to be
replaced in near future. Consequently , the
dividend payments ratio will tend to low

TYPES OF DIVIDEND POLICY

1. ON THE BASIS OF COMPANYS GENERAL
PERSPECTIVE

Whether dividend should be paid right from the

initial year of operations, i.e., regular
dividends .
Whether equal amount or fixed percentage of
dividend be paid every year, irrespective of
the quantum of earnings as in case of preference
shares, i.e., stable dividends.
Whether a fixed percentage of total earnings be
paid as dividend which would mean
varying amount of dividend per share every year,
depending on the quantum of earnings
and number of ordinary shares in the year, i.e., a
fixed payout ratio.
Whether the dividend be paid in cash or in the form
of shares of other companies held by
it or by converting (accumulated) retained earnings
into bonus shares, i.e., property
dividend or bonus share dividend
2. ON THE BASIS OF A RESEARCH STUDY
On the basis of the nature of industry such as
whether industry belongs to electrical,

chemicals, fertilisers, FMCS, automobiles,

pharmaceuticals, textiles, a research study
classified dividend policy into three types. They
are:
Generous dividend policy
More or less fixed dividend policy
Erratic dividend policy
3. ON THE BASIS OF STABILITY OF DIVIDEND
Stable dividend per share
Stable percentage of net earnings
Stable rupee dividend plus extra dividend
Dividends as a fixed percentage of market value