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Finance and Growth Strategies
Finance & Accounting
Pages 11 (2761 words)
Finance and growth strategies Name: University: Course: Tutor: Date: Introduction Dividends are returns which are paid to the shareholders from the firm’s earnings for their investment in the company regardless of whether the earnings are generated in previous period or the current period (Copeland and Weston 1988).
However, some financial analysts are of the opinion that dividend policy is irrelevant since it does not change the value of the firm. Investors can adjust the investment portfolios when if their preference is a steady source of income hence they can invest in bonds where the interest payments are certain rather than investing in common stocks where the dividend payments fluctuate (Copeland and Weston 1988). Another argument of the opponents of dividend payment is that taxation of dividends is higher hence capital gains are more preferable by investors (Damodaran 1997). They propose that the firm should reinvest the earnings which will ultimately increase the value of the firm hence increasing the share value. The firm should utilize its earnings in undertaking more investment projects, repurchasing the common stock and acquiring more profitable companies thus increasing the market value of the common stock (Damodaran 1997). Question one: Practical considerations which are likely to influence a firm’s Dividend policy Dividend decisions are important in the corporate financial policy since they determine the availability and the cost of capital. In making the dividend policy, the firm is faced by the question of how much to pay as dividends. ...
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