How should a firm determine its dividend distribution policy? Discuss three different viewpoints (management, stockholders, and lenders).
One paragraph for how to determine a firm's dividend distribution policy. And then one paragraph for each of the three viewpoints: Management, stockholders, and lenders). Brief would be okay.
Dividend and Dividend distribution policy:
Dividend is the distribution of corporate profits among the shareholders. Dividends can be both equity and preferred dividends. Generally preferred dividends are paid as a pre-agreed fixed percentage of the preferred capital. Equity shareholders get the last preference over the payment of dividends. Dividends can take the form of cash, stock or property. A firm considers the following factors while setting up a dividend distribution policy:
1) The dividend payout ratio
2) Dividend stability
3) Consideration of owners
4) Capital market considerations
5) Inflation and
6) Contractual, legal and internal restrictions and constraints.
The setting of dividend distribution policy should be considered from all viewpoints namely the management, stockholders and the lenders.
The solution explains the main factors to be considered from the view point of the management, stockholders and the lenders while setting up a dividend distribution policy.