Dividend policy determines the division of earnings between payment to stock holders ad re-investment in the firm. It therefore looks at the following aspects:

i). How much to pay – this encompassed in the four major alternative dividend policies.

           Constant Amount Of Dividend Per Share

  • Constant Payout Ratio

  • Fixed Dividend Plus Extra

  • Residual Dividend Policy

ii) When to pay – paying interim or final dividends

iii) Why dividends are paid – this is explained by the various theories which has to determine the relevance of dividend payment i.e.:

               Residual dividend theory

  • Dividend irrelevance theory (MM)

  • Signalling theory

  • Bird in hand theory

  • Clientele theory

  • Agency theory

iv) How to pay: cash or stock dividends.