Dividend Policy- Determinants

Dividend is that part of profit that is distributed among the shareholders of the company .
The payment of dividend includes legal and financial formalities. It is difficult to determine general dividend policy which can be followed by a firm at different situations.


Magnitude of earnings
As dividend can be paid out of present and past earnings, trend and magnitude of earning becomes the starting point of consideration. Moreover retained earnings of the past generally go in investment and hence the amount of profit determines the dividend policy.



Future financial requirement
Dividend policy is also affected by firm’s future capital needs. Funds are required for diversification, expansion and tapping new opportunities. Firm looking out for such options may retain profit and may neglect announcing dividends for the current year.

Income tax
Dividend policy is tremendously affected by the income tax regulations. Income tax may affect the total profit of the company leaving behind a very small amount to be declared as dividend. Moreover if dividend income of the shareholders is heavily taxed the company may not announce dividends on a regular basis in order to safeguard the interests of its share holders.
Age of the company
A newly established business may not declare dividends as its major objective would be to increase the retained earnings that can be used at future period of time.Declaring dividend will result in lack of liquid resources which can limit the establishment in taking advantages of upcoming opportunities. Where as an old establishment can follow a liberal dividend policy because of its piled up profits from the past.

Liquid resources
Dividend can be paid out only when the firm has full control of its liquid resources like cash, marketable securities etc. Lack or requirement of liquid resources in near future goes up in deciding the type of dividend that has to be declared.

Institutional investors
The firm has also to keep in consideration the demands of its institutional investors which helps it time and again. Institutional investors like bank, financial houses etc generally favors a regular payment of cash dividends. Since these investors play a pivotal role in providing financial aid to the company, the company has to mould its dividend policy accordingly.

Stock market investment – Bull or Bear

Stock and shares, commodities , bonds have always remained on the top list when one heads towards the financial community. How market would play is an all time question whether it comes to an economic crunch or it comes to a boom.

Predictions have proved to be useful techniques helping an investor to take decisions regarding investment and divestment as well. Technical analyst give their predictions based on comparative study with past data, trends, cycles, price movements and ratios of a particular scrip , company, industry or market as a whole

Fundamental analyst forecasts on the basis of intrinsic values of the stock, sales, profit, taxes, growth of the company etc.

However, there are as many factors that has the bearing over share prices and the market as well. Such factors include national and international economic health in terms of GDP, inflation, prevailing tax rates , Foreign direct investments , foreign institutional investment, foreign exchange, climatic conditions, political situations, company’s performance in terms of profit and loss, reserves, capital structure, projects and many more.

Besides all such factors I would like to rate “Sentiments” as the driving factor which indicates the market to be “Bear” or “Bull”

Here are some guidelines which would help my friends who want to have some investment in the stock market. I am sure it is going to help you a lot as it helped me reaping good returns .These guidelines have come from market experts and ten long years of my investing experiences and analysis.

Be sure- Investing, speculating or gambling

The very first rule of the market is to understand your own intentions whether you will behave as an investor to reap steady returns gradually, with nominal risk on long term investment, or speculator to reap fast returns with high risk on short term investment or as a gambler to earn abnormal profits with infinite risk irrespective of the time horizon.

Study the market

Having clear intentions of your stand , market study becomes the most important aspect of investing. Collect information about the economic conditions of the country and projections of its future movements. When economic conditions such as GDP , saving ratios, foreign exchange reserves of the country are stable and increasing it’s the right time to invest and vice a versa. Steady growth in economy helps out investors and fluctuations favors the speculators

Do not put all eggs in one basket

It is the golden rule of the market and investment. Be sure of what you are investing in. Making investment blindly in every scrip would bring your portfolio to a no profit no loss situation and even huge losses. Be very choosy about scrip by looking to its past paerformances, dividend rates, expectations of further growth, recent projects and its synergy with other industry performances.

Wait for the right time

Right time to sale and right time to purchase is the factor which will benefit you the most.

Invest at a time where the share prices are to maximum low (bottom line) and divest when it stop rising up. But the point is how to determine the optimum time? This can be determined by reading cycles of that individual stock in various economic conditions.

Boom triggers investment and depression aggravates divestment.

However , recession and depression in the economy can also be an ideal time to start investment or even speculation because of the fact that shares can be availed at all time low prices and then tends to shoot up. The only fear factor is chances of delisting which is very low in case of Big player and even for blue chips.

Tips

Here I am talking about advices one should take from equity research companies, brokers and investment houses. They at times really get hold of some very useful and internal information about a particular scrip or company which will be fruitful for investing.

I don’t know how to succeed but I know overconfidence is the key to failure. It is better to be equipped before war rather than asking for a sword in middle of the battlefield.