Dividend Policy

Dividend policy/decision constitutes yet another major financial decision for corporate firms. It relates to the share of dividends to be paid out of profits earned. The company should prefer the decision which has a salutary effect on the wealth of the shareholders. The two major objectives of this chapter are first, to ascertain/identify the practices followed by the sample companies in this regard and second, to assess whether the sample companies follow a stable dividend policy or not. It is gratifying to note from the 11-year (2001–2011) period of the study that the majority of the sample companies follow stable dividend policy. They seem to follow an approach similar to Lintner’s model. The survey findings on the preference to adopt stable dividend policy (by sectors like oil and gas and ICT amongst others) were in fact more revealing. This practice is in tune with the sound principles of financial management. The empirical evidence, further, suggests that the sample firms have dividend–payout ratio of much less than 25 % for the entire period of the study perhaps suggesting that the sample consists of companies with good growth opportunities. It is worthwhile to mention here that the dividend–payout ratios have been gradually decreasing over the past two decades (as is evident after comparing results with previous studies, viz., Jain and Kumar (Comparative financial management: practices of India and South East Asia. Hindustan Publishing Corporation, New Delhi, pp 43–44, 1997), Jain and Yadav (Financial management practices in select private corporate enterprises – a comparative study of India. Hindustan Publishing Corporation, India/Thailand/Singapore, 2000, Financial management practices – a study of public sector enterprises in India. Hindustan Publishing Corporation, New Delhi, 2005), perhaps indicating better growth opportunities for companies now, necessitating the ploughing back of cash into the business. The study has also brought out industry-wise variations, to some extent, as far as dividend policy and practices are concerned. For instance, FMCG and healthcare sectors had high D/P ratios whereas sectors like metals and diversified reported low D/P ratios.