InvestorQ : What things finance managers consider before taking dividend policy decisions?
Priyanka N made post

What things finance managers consider before taking dividend policy decisions?

Answer
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NISHA Nayak answered.
2 months ago


The dividend decision is one of the crucial decisions made by the finance manager relating to the payouts to the shareholders. There does not exist a single dividend decision process that works for every organization. A decision suitable for one company may prove fatal for another company.

The financial manager must take into account the capital fund requirements while framing a dividend policy. The generous distribution of dividends in capital-intensive periods may put the company in financial distress. The optimal dividend decision is when the wealth of shareholders increases with the increase in the value of shares of the company.

Therefore, the finance department must consider all the decisions viz. Investment, Financing, and Dividend while computing the payouts. If attractive investment opportunities exist within the firm, then the shareholders must be convinced to forego their share of dividends and reinvest in the firm for better future returns.

At the same time, the management must ensure that the value of the stock does not get adversely affected due to less or no dividends paid out to the shareholders.