Dividend: meaning, valuation and policies in different types of markets

Meaning of a dividend 4
Why companies pay dividends 4
How dividend is determined 4
Type of dividends 5
The Process of Paying Dividends 6
Dividend Decision 8
Dividend Policy in perfect capital markets 8
Dividends as Residual 9
Dividend patterns and the valuation model 13
Traditional view of the dividend decision 14
An arbitrage criticism 14
Dividend policy in an imperfect market 17
Clientele effect 17
Dividends as signals 18
Tax considerations 19
Double taxation - the political debate over dividends 20
Measures of the dividend policy 22
DRIPs -Dividend Reinvestment Plans 23
Benefits of enrolling in a dividend reinvestment plan 23
Conclusion 25
Management Beliefs about Dividend Policy 26
Bibliography 27
Introduction
Once a company makes a profit, they must decide on what to do with those profits. They could continue to retain the profits within the company, or they could pay out the profits to the owners of the firm in the form of dividends. Once the company decides on whether to pay dividends, they may establish a somewhat permanent dividend policy, which may in turn impact on investors and perceptions of the company in the financial markets. What they decide depends on the situation of the company now and in the future. It also depends on the preferences of investors and potential investors.
All the time many corporations connects their hopes of financial activities with reinvested profit, which also is their work financial source. Financial dividend payout ratio decreases the size of reinvested profit, and the dividend decision is also fund decision. The dividend policy involve the dividends stability and other factors influencing payments of dividend.
In my work I’ve analyzed the meaning of dividend, dividend decision, valuation and policies. Portrayed the dividend policies in perfect capital markets, where dividend decision can be seen to be irrelevant and the shareholder receives his annual return in two elements: the dividend and the capital gain. The dividend residual model, the traditional view of...

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