The disposal of the earnings is an issue of fundamental importance in financial management. The financial manager plays a key role in advising the management, i.e., Board of Directors regarding the decision. It is the latter whose privilege it is to take the decision. The retention of profits in business helps the company in mobilizing funds for expansion.

The dividend policy, particularly the timing of the declaration of dividend, influences the market value of a company's shares. The financial manager, therefore, should be well informed about the capital market trends and the tax policies of the government, besides the rationale behind the investment programme of the company.

The dividend alternatives available to finance manager while deciding the dividend decision are listed below:

• Regular Dividend: If the company gives dividend every year right from the initial year of operation, it is called regular dividend.
• Stable Dividend: Whether equal amount or a fixed % of dividend paid every year, irrespective of the quantum of earnings as in case of preference shares, i.e., stable dividend.
• Fixed Payout Ratio: When a fix payout ratio is decided on the total of earning available is called fixed payout ratio.
• Bonus Shares or Property Dividend: In this case, the company issues bonus shares.

What factors should he take into consideration before finalizing his views on dividend policy?
> Please refer to the next question for details.