StudentShare solutions
Triangle menu


Nobody downloaded yet

Extract of sample

The management increased both the interim and final dividend throughout the four-year period. In 2007 the company paid an interim dividend of 6.5p which increased to 6.75p in 2008, 6.9p in 2009,7.6p in 2010 and finally 7.9p in 2011. For the case of the final dividend, the amount paid in 2008 was 13.5p, which was increased to 14.1p, 16.2p, 16.85p in 2009,200 and 2011 respectively (Associated British food, 2011). This is attributed to the increasing performance and profitability together with the increase in the performance of the general economy. Since the economy recovered from the recession and the inflation rates reduced, the company realized a reduction in the cost that made it post positive performance. The improving global economic performance also resulted in the increase in the sales turnover and improvement in ABF cash flows (Associated British food, 2011). Since the payments of dividends depends on the availability of cash flows, an increase in the cash inflows would result into an increase in the dividend that can be distributed to the company. Several theories have been developed o elucidate the relevance or irrelevance of dividends decision on the value of a firm (Lease, 2000). Modigliani and Millar dividend irrelevance theory asserts that dividends have no effect on the firms value in a perfect market because dividends are paid out of earnings and therefore whether distributed or not, it does not affect the firms earnings. Dividends have no effect on both equity and cost of equity (Baker, Powell & Veit, 2002). The bird in hand theory was also developed. According to this theory, dividend payments affect the value of a firm since investors are sure about the dividend earnings than the expected capital gains, which they consider as a bird in the bush (Miller & Kevin, 1985). The tax preference theory on the contrary claims that investors will prefer capital gains to the dividend because of the tax advantage associated with the capital gain. Since dividends attract higher taxes, investors will prefer capital gain. The signaling theory further argues that dividend payment is significant in a firm’s investment decisions because it acts as a signal to the performance of the company. A company with high dividends is said to have better future prospects hence this will attract investors; the theory is based on the assumption that capital markets are imperfect and investors have different levels of knowledge (Benartzi, Roni & Thaler,1997). Before selecting a dividend policy, company managements must take into consideration the likely impact of their dividend decisions. Dividend decisions of a firm are important, as it can be use in influencing the value to the shareholders. In paying dividend, firms will considerer several factors. First, the dividend policy can be determined by the financial requirements of a firm. A firm that has several positive investment projects may decide to increase the proportion that is retained to invest in the positive projects (Baker, Powell & Veit, 2002). Retention in this case provides the capital required to undertake the positive projects. Secondly, the dividend policy can also be determined by the nature of the company’s earnings. A company that realizes stable income in the financial performance can decide to increase the amount of dividends paid because of stability in the earnings whereas those with fluctuating incomes may reduce the amount of dividend distributed to the shareholders (Clayman, 2012). Moreover, firms’ liquidity also affects its dividend policy. A firm with better cash flows and which is liquid has the ability to make large dividend payments than that is not liquid. This is because dividends are always distributed out of cash and is therefore determined by the ...Show more


Dividend is the payments that are given to the shareholders from the profits or reserves of a company. In the case of Associated British food company plc, the shareholders have experienced increasing dividends in the last four years. The management increased both the interim and final dividend throughout the four-year period. …
Author : hansenjacey
DIVIDEND POLICY essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Dividend Policy Corporate Finance Essay
Dividends can be paid either in cash or through stocks themselves. The Preferred stock holders are given a fixed dividend every year irrespective of the firms’ profitability whereas the common stock holders are paid from the company’s profitability and hence the dividends change every year.
3 pages (750 words) Essay
Dividend Policy Essay
Basic facilities like water, electricity, food and shelter should be sufficient. Real estates prices will increase when the land is in the center of the city, or in industrial areas, or in residential areas. Infrastructure of the city or town plays an important role because those are the basic amenities that an investor would look into, before buying the land.
6 pages (1500 words) Essay
Marks & Spencers Dividend Policy
The existing shareholders of the company received a mixture of new ordinary shares and redeemable "B" shares. Marks & Spencer also reduced its share capital by 17:21 - or 17 new ordinary shares for every 21 old ordinary shares. The "B" shares, on the other hand, are redeemable for cash plus interest in the future.
12 pages (3000 words) Essay
Dividend Policy Master Essay
The dividend policy of the firm is determined by the fact that the manager's depression to influence the capital structure of the firm by leveraging would allow him to independently act by increasing debt thus reducing equity. Therefore the basis of the dividend policy itself is determined by the manager's ability to manipulate the capital structure of the firm.
9 pages (2250 words) Essay
Dividend Policy and Share Price

The author states that providing dividends to the share holders in the form of cash is dragging out the money available in the firm and therefore the market capitalization of the firm should reduce by the same amount as the total dividends given, because the market capitalization is directly related to the share price.

6 pages (1500 words) Essay
Dividend Policy
Stockholders have certain requirements that need to be taken into consideration in determining dividend policy or formulation of an appropriate dividend structure. Arriva is the one of the biggest names in the transport service business in the
3 pages (750 words) Essay
M Sc Dissertation Proposal ( Dividend policy)
The dividend policy which a company adopts is established on the above two options. As soon as a decision is taken a stable dividend policy can be adopted by the company. These dividend policies determine the outlook of the investors as
4 pages (1000 words) Essay
Dividend Policy
In the interest of clarity, the news included contents of the lawsuit – particularly, why it was lodged and what it was asking – and how Apple addressed the issue. Greenlight Capital’s position
2 pages (500 words) Essay
Doea a dividend policy matter
It considers the process of paying dividend by firms as something which is irrelevant. It is also of the opinion that dividend policies actually decrease the value of the shares because
8 pages (2000 words) Essay
Dividend Policy
Dividend is the amount that a company pays annually or semi-annually to the shareholders out of its profit (Michaely and Roberts, 2012). However, there are certain guidelines which decide the payment of the earning to the shareholders, these set of guidelines is known as dividend policy.
10 pages (2500 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment
Contact Us