A Study On 'Dividend Policy' Concerning Sharekhan Limited

Abstract

The Dividend Decision in corporate finance refers to the process of determining the amount and timing of cash payments to the company's shareholders. This decision is crucial for the firm as it affects its capital structure, stock price, and the tax implications for investors. There are three main factors that can influence a company's dividend decision: Free Cash Flow: According to the Free Cash Flow Theory, the dividend decision is straightforward. The firm pays out any excess cash as dividends after investing in projects with positive net present value. However, this theory fails to capture the dividend policies followed by real companies. Most firms aim to provide stable and predictable dividends over time, rather than fluctuating dividends. Therefore, alternative models have been developed to better explain dividend decisions. Dividend Clienteles: Different types of investors may have preferences for specific dividend payments. For example, retirees may prefer to invest in firms that offer a consistently high dividend yield. On the other hand, individuals with high earned income might prefer to avoid dividends due to their high marginal tax rate. If specific clienteles exist for different types of dividend payments, a firm can enhance its stock price and reduce its cost of capital by targeting a particular clientele. This model helps in determining the overall dividend policies followed by most publicly traded companies.