Fictitious company, Mullin plc., is examining their dividend policy Essay

Fictitious company, Mullin plc., is examining their dividend policy. For the past five years (2008-2012) it has paid no dividend - Essay Example Dividend policy mainly concerns itself with the payment of cash dividends, at the present time, or in a near future (Barnett, 2012). It is important to denote that there are other types of dividends, such as stock dividends, and stock repurchases dividends. Stock dividends involves issuing out dividends in the form of the company’s stock, while stock repurchases dividend involves the buying of the company’s shares from willing investors by the company. This paper mainly concerns itself with cash dividend. The cash dividend policy refers to the actual amount of money that a company pays to investors. According to this policy, a company is supposed to state how much money it pays as dividends to investors, and the frequency of paying this amount of money (Garcia and Moore, 2012). The decision to pay a certain amount of dividends, and the frequency in which to pay this amount of dividends is based on the profitability of the company, and the excess cash it accumulates at t he end of each trading period. When there is a surplus in cash, the company can either decide to pay dividends, or it can decide to expand its operations. Developing a dividend policy is a very challenging initiative for the directors of a company. This is because investors of the company have differing views on the current cash dividends, and also on the future expectations of the capital gain (Ross and Westerfield, 2013). Another confusion that emerges in developing a dividend policy is the effect of the policy on the share prices of the company. It is important to denote that a favorable dividend policy will always lead to an increase in the share prices of a company. On the other hand, a dividend policy that is not favorable will on most occasion lead to the reduction of the share prices of the business entity. This is an aspect that managers of a business organization will always thrive to avoid. This paper identifies, and analyzes the various dividend policies that Mullin plc has, and their advantages or disadvantages. It examines if the policy under consideration will be beneficial to the company. This paper identifies four different types of dividend policies, namely (Shukla, 2012); i. Stable dividend policy ii. Irregular dividend policy iii. No immediate policy on dividend. iv. Regular dividend policy This paper has a conclusion, which provides a clear recommendation on the appropriate policy that the company should enact, and the justifications on why that policy is the best. Regular Dividend Policy: Regular dividend policy involves a situation where investors of a company are able to receive dividends at their usual rates, and on a constant period of time. The main investors in a company that provides such kind of a dividend are usually retired individuals, or weaker members of the society. This includes people with low wages or no income sources at all. The company can maintain this type of a dividend policy only if its revenue from its business op eration is stable and regular. This type of dividend policy manages to create a sense of confidence amongst the shareholders of a company (Stout, 2012). This is because they are guaranteed of a certain percentage of dividends at the end of the business financial years. It is also a sign that the operations of the business organization are stable and thus the company is making profits. This policy also