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Availability of Funds

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...

Growth Prospects

Growth Prospects Another set of factors that can influence dividend policy relates to the firm growth prospects. The firm is required to make plans for financing its expansion programmed this context, the availability of external funds and its associated cost together...

Internal Constraints

Internal Constraints Such factors are unique to a firm and include (i) liquid assets. (ii) growth prospects, (iii) financial requirements, (iv) availability of funds, (v) earnings stability and  (iv) control. Liquid Assets Once the payment of dividend is permissible...

Contractual Requirements

Contractual Requirements Important restrictions on the payment of dividend may be accepted by company when obtaining external capital either by a loan agreement, a debenture indenture, preference share agreement, or a lease contract. Such restrictions may cause the...

Net Profits

Net Profits Alternatively, a firm cannot pay cash dividends greater than the amount of current profits plus the accumulated balance of retained earnings. For instance, section 205 of the Indian Companies Act provides that dividends shall be paid only out of the...