Abstract:
The focus of this thesis paper is to find out factors that affect the dividend policy of
companies. A firm considers various factors when approaching a dividend policy
decision. My analysis topic is factors affecting dividend policy of companies. The study
is solely based on secondary data. Total nine articles have reviewed to find out the factors
that affect dividend decisions. The study shows that profitability, firm size, cash flows,
interest coverage ratios, debt, changes in dividend/ volatility of dividend payment and
collateral capacity and liquidity are positively associated with dividend policy. Cash,
growth opportunity, age, Business risk, P/E, beta rate, financial leverage are negatively
related to dividend policy. No meaningful relationship between the dividend policy and
liquidity, asset tangibility, company’s size and rate of retained earnings. Managers may
not cut dividends so as not to create panic among investors and subsequently lead to fall
in share prices. Investors should consider that young firms have more growth
opportunities and may retain funds for financing this growth instead of paying dividends.
Investing in profitable projects, profits of companies can be increased which lead to rise
in dividend payments. The firms should consider profitability, size, leverage and liquidity
when designing their dividend payout policy.
