Explain Stable Dividend Policy With Example.

Explain Stable Dividend Policy With Example.

Stable Dividend Policy With Example.

Friends, we are all aware that whenever a publicly listed company makes a profit, it strives to pay a portion of that profit to its shareholders in the form of dividends.

However, it is up to the management of that company to decide when and how much dividend should be paid to its shareholders and to do so, the company must have to construct a robust dividend policy that takes into account a variety of factors.

By taking a variety of factors into consideration companies can formulate so many kinds of dividend policies. Still, today in this article, we are going to discuss the stable dividend policy in detail. If you want to know more about the same, kindly read this article until the end.

What is the Stable Dividend Policy?

As the name suggests, it can be clearly guessed that the Stable Dividend Policy is such a type of dividend policy in which the company pays a fixed amount of dividend to its shareholders at regular intervals of time.

Whether the company is making profit or loss, it does not make much difference to the shareholders of this company because in this policy the company pays regular dividends.

Many times it also happens that when the time of prosperity is going on, then the company may earn a lot of profit but still it pays only a fixed amount of dividend to its shareholders.

Explain Stable Dividend Policy With Example.

Maximum time the company keeps that high earned profit with itself so that it can pay a fixed amount of dividend to its shareholders in the coming years without so much hesitation.

A stable dividend policy does not indicate stagnation in dividend payout. If the company is assured about a permanent increase in earnings, the amount of dividend per share may be increased.

Many times the company does not pay the regular dividend in form of cash to its shareholders and instead of that it issues bonus shares to its shareholders in the form of dividends on regular time and we can also consider this thing as a part of a stable dividend policy. Many people will not agree with us regarding this point but as we all know that different people have different perceptions of the same thing.

Key Points to Remember About Stable Dividend Policy

  • It is said that whenever a company pays dividends to its shareholders at a regular time, then the credit standing of that company increases in the market. The investors who are investing their money in the company also get the assurance of getting a stable income and for this reason, the company can gain as much of as funds they required from the market for their business.
  • When a firm divides a portion of its profits with its shareholders on a regular basis, the price of the company’s stock normally rises. The marketability of that company’s shares grows, and as a result, new investors are willing to pay substantial premiums to buy the shares of that particular company. 
  • A company adopting a stable dividend policy generally enjoys the confidence of its shareholders and because of this, the company gets the advantage that it can easily raise the funds from its investors for its upcoming future project and this thing also helps in boosting the morale of the company’s management.
  • The company which is following stable dividend policy can formulate financial planning on a long term basis as future demand and supply of capital can be correctly estimated.
  • While formulating the stable dividend policy, care should be taken not to fix the dividend payout ratio at a very high level which can not be maintained in lean period. For this purpose, correct estimations of earnings and future earnings of the company should be made.

Final Conclusion on Stable Dividend Policy

Friends, we really hope that you have liked this article related to the Stable Dividend Policy really very much.

If you have any queries regarding this article, then you can share them with us by commenting in the comments section.

If you have liked this article, then kindly please share it with your friends via various social media platforms. Thank you so much for sharing your valuable time with us and reading this article till the end

3 thoughts on “Explain Stable Dividend Policy With Example.”

  1. Pingback: Why Some Companies Don't Pay Dividends? - Indian Apex

  2. Pingback: What is the Historical Evolution of Dividends? - Indian Apex

  3. Pingback: Top Duties and Responsibilities of Finance Officer - Indian Apex

Leave a Comment

Your email address will not be published.