What is the Stable Dividend Policy and Why it is So Important?

Stable Dividend Policy

Friends, we are all aware that any firm should pay dividends to shareholders who have invested their money in the company, on a regular basis.

In general, we all know that if a company pays a dividend to its shareholders on a constant schedule then there are high chances that many potential investors are attracted to buy that particular company’s shares, allowing the company to easily boost its working capital by issuing new shares through FPO.

But one thing we all know is that whether o to pay a dividend to their existing shareholders or not is solely decided by the company’s management, and even if the company don’t ever pays the dividend then the shareholders do not have any right to raise any questions regarding to particular this topic.  

Dividend Policy

However, it is also common for most companies to actually pay dividends to their shareholders at regular intervals in order to maintain their shareholders’ trust in the company and encourage them to invest valuable money in the company for a long time.

In general, each company’s strategy to paying dividends to its shareholders is extremely diverse and that is the main reason why each company’s dividend policy is also very divergent.

By the way, in the universe of the stock market, Stable Dividend Policy and Regular and Extra Dividend Policy are given a lot of importance at this time, and this is one of the reasons why companies that pay their dividends on a regular basis get a lot of benefit in managing their working capital as they can raise money for their business at any time with ease.

So, In this article, we will tell you about each and everything about the stable dividend policy in detail. Kindly please read this article till the end if you really want to know more about the stable dividend policy.

What is the Stable Dividend Policy?

As the title suggests, this dividend policy is a type of dividend policy wherein the company pays a fixed amount to its shareholders as a dividend over a specified period of time that has been completed.

The distinguishing characteristic of this dividend policy is that it is independent of the fluctuations in the company’s income, and even if the company’s operational revenue is in a loss in any particular year still its shareholders will still get a predetermined amount of dividend.

It is now important for you to understand one more characteristic of this steady dividend policy is that even if the company makes a lot of money in a given year, it can only pay a certain amount of dividends if it really wishes.

In general, many companies who accept this dividend policy retain a portion of their income in reserve so that they may pay a fixed sum to their shareholders in the coming years.

It is not necessary that companies that adopt the stable dividend policy to pay only a fixed amount of dividend, because when a company has only made a profit in the last few years then it is possible that the company’s management will pay a dividend with the increased amount of money to its shareholders. 

Advantages of the Stable Dividend Policy

(1) It is generally observed that if a company pays a regular dividend then the company’s trustworthiness remains strong among the shareholders because the shareholders also have got the assurance that their money is invested inside a safe place.

This thing actually helps any company to give an outfit to able to conveniently arrange funds to grow their business by requesting their shareholders whenever they want.

(2) Whenever a company pays regular dividends to its shareholders, then the trust of the people towards that company increases even more and because of this the share price of the company always increases, and due to this reason, people also buy that company at higher prices.

Particulars buy the shares of the company and because of this the all overall valuation of the company also increases significantly.

(3) Companies that have a steady dividend policy have earned the trust of their shareholders in such a way that if the company needs money to expand its operation then it can easily approach its shareholders for it and can also raise funds very easily, which benefits the company’s management in terms of morale.

(4) Whenever a company delivers a constant dividend, you can be certain that the company’s business model is very profitable and that the company has a sufficient supply of capital that it can operate its business with ease in the future as well.

Special Note

Before adopting a stable dividend policy, any company must consider whether it will be able to pay the dividend to its shareholders for a long period of time, and in order to do so, any company must do a financial analysis. This strategy should be implemented only after a thorough examination of the company's financial and fundamental revenue models.

Final Conclusion on Stable Dividend Policy

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