The third major decisions the film makes, is related to dividend decisions. The dividend policy determines the amount of earnings retained in the firm (internal financing) and amount distributed as dividends. The dividend policy must be evaluated in the light of the objective of the firm i.e., to choose a policy that help in maximizing the value of the firm to its shareholders. Shareholders wealth includes dividends and market price of the share. In the present chapter. we will examine whether dividend policy helps in maximizing the wealth of shareholders given its investment decision. There are different schools of thought. These are:
- Dividend Policy and a Financing Decision
(a) Walter Model
(b) Gordon Model
- Traditional Position
- Dividend Policy under uncertainty.
- Dividend Irrelevance (M-M Model)
- Dividend Relevance