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Factors involved in Dividend Policy.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Factors involved in Dividend Policy.

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • May 6, 2021 at 12:40 am #619796
    Syed Ahsan Ali
    • Topics: 107
    • Replies: 66
    • ☆☆

    Sir, I watched your lecture recently on chapter 11 about dividend policy such as clientele effect & signaling effect but I couldn’t find the factors that are involved in deciding the dividend policy/

    Please state a few factors involved in deciding on a dividend policy.

    May 6, 2021 at 7:35 am #619821
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    Obviously the actual dividend a company is able to pay each year is limited by the cash available and (by law) by the amount of retained earnings.

    However, the dividend policy is what the overall long-term intention of the company is as regards dividends – whether to pay high dividends (and therefore low capital growth in the market values) or whether to pay low dividends (and therefore higher capital growth). (You will have seen the illustration elsewhere in my lectures explaining how the retention policy chosen affects the dividend growth rate and therefore the capital growth).

    Most large companies adopt a constant dividend policy in order to avoid the signalling effect. The policy they adopt depends on what type of shareholders they want to attract (the clientele effect).

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