What is Irregular Dividend Policy?

Irregular Dividend Policy

Friends, we all know that if a company makes a profit from its business then it either keeps that profit in a safe and invests it in the future, or it distributes some portion of that profit as a dividend to its shareholders.

However, it is not obligatory for an organization to continuously distribute the money from its earnings to its shareholders, because this is entirely reliant on how the firm’s management choose to disperse that earned profit.

Why Dividend Policy?

The decision to distribute the dividend among shareholders has always been viewed as controversial.

Many intellectuals feel that a portion of a company’s profit should be paid to shareholders; nevertheless, many people actually believe that an organization should never distribute a portion of its profit to shareholders. It should only be used for future business operations.

However, there is a truth that whenever a company distributes a portion of its profits to its shareholders then the trust of all those shareholders in the company grows even stronger and this thing actually helps any company to obtain funds from its business expansion is also becoming fairly simple.

However, in such a situation, businesses must decide how many portions of their profits should be spent in the business and how much profit portion should be distributed among their shareholders.

To handle this situation the various companies have to develop various kinds of dividend policies to distribute dividends to their shareholders.

If seen then in today’s time there are primarily five types of dividend policies are used for the dividend distribution in India, with the most common being the Stable Dividend Policy and the Irregular Dividend Policy.

Today, we will try to provide some important information about the Irregular Dividend Policy through this article.

What is Irregular Dividend Policy?

The name Irregular Dividend Policy suggests that in this dividend policy, the dividends are not distributed to shareholders on a regular basis, which seems to be the case with the Stable and Regular Dividend Policies.

Companies that follow this dividend policy have many reasons for not paying dividends to their shareholders, and their shareholders are well aware of these reasons at the maximum times. 

If we talk more about the Irregular Dividend Policy then you will probably be surprised to know that if the company has more profit in any year, then that company can also distribute a lot of dividend to its shareholders.

But you also need to know that if the company does not earn any kind of profit from its business operations at any point in time, then it is also possible that company may not provide regular dividend to its shareholders. It means that company’s dividend is actually dependent upon the earning capital of the company. 

From this perspective, it has been stated very clearly in this dividend policy that shareholders are only entitled to receive dividends when the company’s profits are sufficient and the company’s liquidity position allows it to do so .

Typically, this dividend policy has never been followed by the majority of companies because the shareholders also avoid such companies, signaling that the company has a severe lack of reliable income.

In general, many companies that follow this dividend policy benefit from the notion that they are not obligated to pay dividends to their shareholders during any regular time frame, and as a result, those who invest in such companies do not anticipate to get a huge dividends from the such companies. 

Final Conclusion on Irregular Dividend Policy

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