Availability of Funds
The dividend policy is also constrained by the availability of funds and the need for additional investment. In evaluating its financial position, the firm should consider not only its ability to raise funds but also the cost involved in it and the promptness with which financing can be obtained. In general, large mature firms have greater access to new sources for raising funds than firms which are growing rapidly. For this reason alone, the availability of external funds to the growing firms may not be sufficient to finance a large number of acceptable investment projects. Obviously, such firms have to depend on their retained earnings so as to amount of maximum number of available profitable projects. Therefore, large retention are necessary for such firms.