Why Dividend Decision is Important for Companies?

Why Dividend Decision is Important for Companies?

Why Dividend Decision is Important?

We all know very well that whenever a publicly listed company earns profit from its business, it uses the maximum portion of its earnings for the expansion of its business and distributes some part of its earnings among its shareholders.

It becomes very important to know one thing about dividend policy that it is not necessary that the company must give some part of its profits to its shareholders in the form of dividends.

In fact, if the company does not want to pay the dividend along with its shareholders, then it is free for that also. You may not believe it, but a big tech company like Apple has never paid dividends to its shareholders to date and it is totally true at all.

It is considered very important for any company to make the decision whether to pay or not to pay dividends among its shareholders.

In fact, the finance manager of the company discusses this very deeply with the directors regarding this particular topic whenever companies make some certain amount of profit with the help of their business. We will give you some specific information about why this happens with the help of this article.

Why Dividend Decision is Important?

In case if you don’t know then we would like to tell you that only the finance manager has the ability to create a dividend policy for the company.

The Finance Manager of the company has to choose such a dividend policy that can actually make a balance between the growth of the company and between the shareholders of the company.

A wrong dividend policy may put the company into financial troubles and the company’s capital structure may go into the position of an unbalanced situation.

If this situation happens then the companies growth may get hampered. In such a situation, the finance manager has to formulate some such kind of dividend policy that aligns with the maximization of the wealth of the shareholders and the value of the firm.

See, it is very important for you to know one thing about dividend distribution that till now SEBI or any other statutory body has not made any specific rules and regulations regarding what percentage of dividend has to be paid amongst the shareholders.

As such, to decide dividend policy may be one of the trickiest and delicate decisions which the management of the company may require to take.

Suppose the management of the company thinks of distributing the maximum part of its profits with its shareholders, then it is possible that the company will win the trust of its shareholders and investors and can also attract more potential investors in the future.

Many times, shareholders just invest their money in companies so that they can get the benefit of dividends at regular intervals of time. Usually, this types of company have a higher amount of market share price as the shareholders and investors have a huge amount of trust in it.

Many times it also happens that if the nature of the management of the company is very conservative, then it thinks of keeping the maximum portion of that profits with itself so that the company can spend more and more money in the process of expansion and modernization in its business.

Usually whenever a company spends more and more money on modernization and expansion in its business, then one of the objectives of that business is to earn more and more money from this investment in the upcoming future. For this reason, many times the company also formulates a stable dividend policy for its shareholders.

However, here shareholders have to keep one thing in their mind is that if the company is retaining maximum profits with itself and doesn’t willing to pay dividends to them then they may have to forego the dividends in the short run but they will certainly get benefit in the long-run.

Final Conclusion on Why Dividend Decision is Important

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