Dividend Distribution

The percentage of the profit distributed to the shareholders is known as the dividend. The
choice at hand is how much of the company's profit should be divided to the shareholders
after taxes have been paid. It also contains the portion of the profit that needs to be invested
back into the company. The retained earnings boost the company's potential for future
earnings when the present income is reinvested. The amount of retained earnings has an
impact on the company's choice of financing as well. The decision to declare a dividend
should be made with the goal of maximising shareholder wealth in mind.

Factors Affecting Distribution of Dividend

Earnings Amount: Earnings from both the current and prior year are used to pay dividends.
Greater dividends are guaranteed by higher earnings, whereas lower earnings will result in
the declaration of a low dividend rate.
Earnings consistency: A firm that is steady and has consistent earnings can afford to pay a
bigger dividend than a company that does not have such earnings consistency.
Dividend Stability: Some businesses adhere to the principle of paying a steady dividend since
it appeases shareholders and enhances their reputation. A high dividend is announced if the
earning potential is strong, whereas a low or regular dividend is given if the earning is
temporary or not increasing.
Growth Prospects: Businesses with growth prospects desire to keep more of their earnings in
order to fund new projects. As a result, businesses with immediate development possibilities
will issue less dividends than businesses without such plans.
Paying dividends is related to the outflow of funds in the cash flow position. Even if a
business is lucrative, cash may be an issue. If a corporation has extra funds, it can increase
dividend payments; conversely, if it doesn't, it might declare a low dividend.
Taxation Policy: The government's tax policy affects dividend rates as well. Given the
current tax laws, shareholders want bigger dividends since they receive tax-free income
through dividends. The choice to pay dividends, though, is up to the company.
Reaction on the stock market: The market value of a share and the dividend yield are closely
associated. The market value of the shares is positively impacted by a higher dividend yield.
A low dividend yield, however, could lower stock market share prices. Therefore, when
determining the dividend rate, management should take into account the impact on the price
of equity shares.

According to the Institute of Chartered Accountants of India, dividend is "a distribution to

shareholders out of profits or reserves available for this purpose." "The term dividend refers
to that portion of profit (after tax) which is distributed among the owners / shareholders of the
firm”.
"Dividend policy determines the ultimate distribution of the firm's earnings between retention
(that is reinvestment) and cash dividend payments of shareholders." "Dividend policy means
the practice that management follows in making dividend payout decisions, or in other words,
the size and pattern of cash distributions over the time to shareholders."

TYPES OF DIVIDENDS: Classifications of dividends are based on the form in which they
are paid. Following given below are the different types of dividends: i. Cash dividend ii.
Bonus Shares referred to as stock dividend iii. Property dividend interim dividend, annual
dividend. iv. Special- dividend, extra dividend etc. v. Regular Cash dividend vi. Scrip
dividend vii. Liquidating dividend viii. Property dividend

cash dividend
The majority of companies pay dividends in cash. When cash dividends are declared, a
company should have adequate money in its bank account. If its bank account is
insufficient,It is important to make plans to borrow money. When the Company maintains a
consistent dividend a cash budget for the upcoming term should be created as per policy to
show the required finances,
This would be required to cover the company's annual dividend payments. It is not a lot. It is
challenging to develop finance plans in advance of dividend requirements when an
unpredictable policy is followed.When a cash dividend is paid, the company's cash and
reserve accounts will be decreased. As a result, when the cash dividend is paid out, the
company's total assets and net worth are both decreased. Most of the time, the amount of the
cash dividend issued reduces the share's market price.
Bonus Shares:
The free issuance of shares to current shareholders constitutes a bonus share issue. Bonus
shares are distributed in India in addition to cash dividends, not in instead of cash dividends.
As a result, Indian companies may augment cash dividends with bonus offers. The number of
outstanding shares of the corporation rises as a result of bonus share issuance. The existing
shareholder receives a proportionate share of the bonus shares. As a result, there is no
ownership dilution. The company's reserves and surplus retained earnings will decrease as a
result of the declaration of the bonus shares, which will also increase paid-up share
capital.The bonus issuance has no impact on the entire net value (paid-up capital + reserves
and surplus). In actuality, a bonus issuance is a recapitalization of surplus and reserves. The
move from reserves and surplus to paid up capital is essentially an accounting transaction.
Dividend special: in unique circumstances The business announces special payouts.
Ordinarily, a corporation will declare a special dividend when its profits are unusual.
Extra-dividend: An extra-dividend is a non-recurring payout that is paid on top of the
company's normal dividend payments. Instead of trying to retain a greater level of monthly
payouts, companies with erratic earnings give out more dividends when their earnings allow
it.
Annual dividend: A firm is said to pay and declare dividends on an annual basis. Any time a
corporation announces a dividend during the course of the year, it is referred to as an interim
dividend.
Regular cash dividends: They may be paid quarterly, monthly, semiannually or annually.
Scrip dividends: These are promises to make the payment of dividend at a future date: Instead
of paying the dividend now, the firm elects to pay it at some later date. The ‘scrip’ issued to
stockholders is merely a special form of promissory note or notes payable. Liquidating
dividends: These dividends are those which reduce paid-in capital: It is a prorata distribution
of cash or property to stockholders as part of the dissolution of a business. Property
dividends: These dividends are payable in assets of the corporation other than cash. For
example, a firm may distribute samples of its own product or shares in another company it
owns to its stockholders.

References:
1. https://www.geeksforgeeks.org/dividend-decision-meaning-and-factors-affecting-dividend-
decisio
2. https://www.srcc.edu/sites/default/files/Eco(hons.)_BCH%202.4(b)_GE-
FINANCE_Dividend%20Policy_RuchikaChoudhary.pdf
3.