The paper "The Decision to Pay Dividends" is an outstanding example of a finance and accounting coursework. Dividends often refer to the cash paid out by the organization to its shareholders or investors. If the firm makes a payment using other sources apart from accumulated or current retained earnings, then the term distribution is often used rather than a dividend. However, distribution from earnings can be referred to as dividend. More specifically, direct payment by the firm to its shareholders and investors may be regarded as a dividend. There are different types of dividend.
The key forms are cash dividend, a special dividend and extra dividend (Bhat, 2008). The decision by the firm to pay a dividend to the shareholders is greatly relevant to the real world. Additionally, before paying dividends to its shareholders, there exist certain factors that the firm need to consider. This paper explores how the extent to which the decision to pay dividends by companies is relevant to the real world. The scope of the paper analyses key factors which management need to consider when determining the timing and size of the firms next dividend payment. The extent to which the decision to pay dividends by firms is relevant in the real world Dividends paid by companies are seen positively by the companies and investors.
Companies which do not give dividends are rated negatively by the investors thus impacting its share price. Individuals who support the relevance of dividends to real-world clearly indicate that dividends lower uncertainty of the shareholders. For instance, the company’ s earnings are discounted at a reduced rate thus increasing the company’ s market value in the real world.
Essentially, the decision of the company to give or not to give dividends relies on whether the organization has enough chance to invest their retained earnings (Frankfurter, 2003). The dividends given to the shareholder is important and makes the shareholder make more returns. Walter’ s model claims that shareholders reinvest dividends paid to them by the company and gain more returns. Thus the shareholders are able to improve their living standards from the dividends paid to them by the firm. Additionally, investors are able to calculate the value of the firm from the dividends it offers to its shareholders.
The dividend discount model is a formula explaining the value of a share. The model claims that a share is worth the amount of all potential dividends payments. Dividends are forms of cash flow to the shareholders and investors; they are also a vital reflection of the firm’ s value. Thus the organization is capable of attracting the trust of many investors in the real world (Helminen, 2010). Additionally, dividends act as real actual income for the investors and shareholders. The dividend is the only return that shareholders and investors receive when they purchase stock.
One of the key importance of dividend payment is that they provide shareholders with a consistent flow of income on a quarterly basis. Without dividend payment, many shareholders and investors would earn no income (Lichtenfeld, 2015). In general, dividend payment enables the shareholders and investors to face the real world with confidence since they have enough funds to earn a living.
Baker, H. K. (2009). Dividends and dividend policy. Hoboken, N.J: John Wiley
Bhat, S. (2008). Financial Management: Principles and Practice. New Delhi: Excel Books
Frankfurter, G. M., Wood, B. G., & Wansley, J. W. (2003). Dividend policy: Theory and practice. San Diego, CA: Academic Press.
Helminen, M. (2010). The international tax law concept of dividend. Austin [Tex.: Wolters Kluwer Law & Business
Lichtenfeld, M. (2015). Get rich with dividends: A proven system for earning double-digit returns.
Weygandt, J. J. (2010). Accounting principles. Mississauga, Ont: J. Wiley & Sons