Importance and Solution of Dividend Decisions

Dividends decisions are integral part of a firm's strategic financing decision. It is hence a plan of action adopted by management like as payment of high dividends means less retained earnings and the firm may have to go to the market to borrow for investment purposes. This will increase its gearing level.

Solution to the Dividend Puzzle

A firm's dividend decision may contain some relevance to the firm's share value. The manager thus requires formulating an optimal dividend policy that will maximize the wealth of the shareholders as value of shares.

1. How Much To Pay

Alternative Dividends Policies

2. When to Pay

Firms pay final dividends and interim dividends.  Interim dividends are paid on the middle of the year and are paid in cash.  Final dividends are paid at year ending and can be in cash or bonus question.

3. Dividends Theories (Why Pay Dividends)