Question

1. Please give two examples/scenarios in which low dividend policy matters

Answer 1

Dvdend Means the portion of the net profit of the company that is distributed to the share holders in return of their investment in the company. Non distributed profit is called retained earnings which is reinvested in the business for the growth.

There are two kinds of dividends namely

1. Cash Dividend - Dividend is paid out of cash to the shareholders.

2. Bonus Dividend - Insted of cash, shares of the company is distributed to the shareholders at no cost

The followinng are the two situations where companies follow low dividend policy

1. Low Net profit - if the company has low profit, then company will reduce the amount of the dividend.

2. High Debts - If the company has high debts then the management will focus to reduce the debt and interest with the profit rather than distributing among the shareholders