Best answer: What are the external factors that determine dividend policy?

What are the factors which determine the dividend policy of a company?

The financial matters like trend of profit, existence of earned surplus, cash position, reaction of shareholders, economic policy of the nation, need for expansion, and nature of the enterprise trade cycle, age of the company, government taxation policy are determinants of dividend policy.

What are the six factors that affect dividend policy?

There are six main factors affecting the dividend policy of a firm. These are legal constraints, contractual constraints, internal constraints, growth prospects of a firm, owner considerations, and market considerations.

What are the factors affecting dividend decisions?

The following are the some major factors which influence the dividend policy of the firm.

  • Legal requirements. There is no legal compulsion on the part of a company to distribute dividend. …
  • Firm’s liquidity position. …
  • Repayment need. …
  • Expected rate of return. …
  • Stability of earning.

What 3 factors influence the direction of a dividend policy?

The corporate, institutional and legal factors that influence the dividend decision of a firm include the growth and profitability of the firm its liquidity position, the cost and availability of alternative forms of financing concerns about the managerial control of the firm, the existence of external (largely legal) …

How do you evaluate dividend policy?

Investors who are focused on dividend-paying stocks should evaluate the quality of the dividends by analyzing the dividend payout ratio, dividend coverage ratio, free cash flow to equity (FCFE), and net debt to earnings before interest taxes depreciation and amortization (EBITDA) ratio.

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