OMTEX CLASSES: TYPES OF DIVIDEND POLICY.

TYPES OF DIVIDEND POLICY.





Meaning: -The term ‘dividend’ has not been defined in the Companies Act, 1956. Section 2 (14-A) of Companies Act defines ‘dividend’ to included ‘interim dividend’. Generally, a dividend policy may be of two type’s conservative dividend policy or liberal dividend policy. There are also other types of dividend policies.


“Dividend is the share of the company’s profits, which is distributed among the members of the company. It is the return on investment in shares of a company”.


The types of Dividend Policies are briefly explained as follows: -


1.       Conservative Dividend Policy: -The Company pays a lower dividend rate even in those years where it makes high profits. A larger share of profits is transferred to reserves. During the period of inadequate profits or absence of profits, the company may not pay dividend at all.


2.       Liberal Dividend Policy: -The Company pays a higher rate of dividend, even in those years when it makes low profits. A lower share of profits is transferred to reserves.     During the period of inadequate profits or absence of profits, the company may pay       dividend as per the Provisions of Companies Act.


3.       Stable Dividend Policy: -The dividend paid is more or less stable. The dividend remains more or less same irrespective of the rate of profits.


4.       Fluctuating Dividend Policy: -Most of the companies adopt fluctuating dividend policies. The dividend varies with the rate of profits. If the profits increase, he rate of dividend goes up and vice versa.


5.       Regular Dividend Policy: -A company may adopt a regular dividend policy. In this case, dividend is paid every year, irrespective of whether the company makes a profit or loss. Even of the company makes a loss in one year, it will pay the dividend out of accumulated profits or reserve. However, such policy must follow the provisions of the companies Act.



6.       Interim Dividend Policy: -The Company may adopt an interim dividend policy. In addition to regular final dividend, a company may have a policy to pay interim dividend in between two annual general meetings. However, to pay interim dividend, there must be a provision in the articles of associations.