Its goal is steady and predictable dividend payouts annually, which is also what most investors want. If the shareholders desire to diversify their portfolios they would like to distribute earnings which they may be able to invest in such dividends in other firms. Professor Walter has evolved a mathematical formula in order to arrive at the appropriate dividend decision to determine the market price of a share which is reproduced as under: k = Cost of capital or capitalization rate. It means a firm should retain its entire earnings within itself and as such, the market value of the share will be maximised. We should use our judgment and not rely upon them completely to arrive at the value of the company and make investment decisions. An argument that, "within reason," investors prefer higher dividends to lower dividends because the dividend is sure but future capital gains are . The Traditional View of the Dividend policy demonstrated how Dividend payouts affect the market price of the share. Traditional view (of dividend policy) Trailing earnings. As a company's earnings per share fluctuates, so will the dividend. In this way, investors experience the full volatility of company earnings. Likewise, if an investor has no present cash requirement, he can always reinvest the received dividend in the stock. But this does not make any sense. How Does It Work, and What Are the Types? There are three main types of Dividend Relevance Theories. The above argument (i.e., the investors prefer for current dividends to future dividends) is not even free from certain criticisms. In this case, a company cutting their dividend actually worked in their favor, and six months after the cut, Kinder Morgan saw its share price rise almost 25%. Myopic vision plays a part in the price-making process. This paper offers some contributions to finance literature. As a result, M-M hypothesis, is criticised on the following grounds: M-M hypothesis assumes that taxes do not exist, in reality, it is impossible. A fourth kind of dividend policy has entered use: the hybrid dividend policy. The second type is the Dividend irrelevance theories that suggest that the decision to impart dividends is irrelevant to deciding the companys share value and the value of the company. Traditional Approach: This theory regards dividend decision merely as a part of financing decision because. . The results from most of this research are consistent with Lintnds view of dividend policy. In early 2019, the company again raised its dividend payout by 25%, a move that helped to reinvigorate investor confidence in the energy company. . Dividends can be increased or decreased, depending on the company's performance. In short, under this condition, the firm should distribute smaller dividends and should retain higher earnings. This type of dividend is used when firms It has already been explained while defining Gordons model that when all the assumptions are present and when r = k, the dividend policy is irrelevant. According to this concept, investors do not pay any importance to the dividend history of a company, and thus, dividends are irrelevant in calculating the valuation of a company. No matter if it comes from share price appreciation, dividends, or both. Moreover, many assumptions in the above models, such as that of constant ROI, cost of capital and absence of taxes, transaction costs, and floatation costs, do not hold ground in the real world. This paper provides literature on dividend policy decisions by the corporates in the perspective of shareholder's wealth. Many companies try to maintain a set debt-to-equity ratio. There is no external source of finance available to the company. the large U.S. 2003 dividend tax cut caused little to zero change in near-term corporate investment and mainly resulted in inated dividend payouts. The shareholders/investors cannot be indifferent between dividends and capital gains as dividend policy itself affects their perceptions, which, in other words, proves that dividend policy is relevant. 6. DIVIDEND IRRELEVANCE THEORYThese theories contend that there are two components of shareholderreturns. The bird in hand theory by Myron Gordon and John Lintner is in response to this theory and talks about investors concern in preferring dividends rather than capital gains. Dividend is the part of profit paid to shareholders. Stable or irregular dividends? Action Alerts PLUS is a registered trademark of TheStreet, Inc. Companies that pay dividends do so as part of their strategy. Financing with retained earnings is cheaper than issuing new common equity. However, many investors found the company on solid footing and making sound financial decisions for their future. What is "dividend policy"? For example, if a company sets the payout rate at 6%, it is the percentage of profits that will be paid out regardless of the amount of profits earned for the financial year. There are various dividend policies a company can follow such as: Under the regular dividend policy, the company pays out dividends to its shareholders every year. MM theory goes a step further and illustrates the practical situations where dividends are not relevant to investors. The Walter model was developed by James Walter. On the contrary, when r

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