The objective of corporate management is to maximize the market value of the enterprise. The market value of common stock of a company is influenced by its policy regarding allocation of net earnings into "plough back" & "payout". While maximizing the market value of shares, the dividend policy should be so oriented as to satisfy the interests of the existing shareholders as well as to attract the potential investors. Thus, the aim should be to maximize the present value of future dividends and the appreciation in the market price of shares.

Dividend Policy Goals

• Dividend policy should be analyzed in terms of its effect on the value of the company.
• Investment by the company in new profitable opportunities creates value and when a company foregoes an attractive investment, shareholders incur an opportunity loss.
• Dividend, investment, & financing decisions are interdependent and there is often a trade off.
• Dividend decision should not be considered as a short run residual decision.
• Whatever dividend policy is adopted by the company, the general principles guiding the dividend policy should be communicated clearly to investors.
• Erratic & frequent changes in dividends should be avoided. Reduction in the rate of dividend is painful thing for the shareholders to bear.