Meaning: -The term ‘dividend’ has not been defined in the Companies Act, 1956. Section 2 (14-A) of Companies Act defines ‘dividend’ to included ‘interim
dividend’. Generally, a dividend policy may be of two type’s conservative
dividend policy or liberal dividend policy. There are also other types of
dividend policies.
“Dividend is the
share of the company’s profits, which is distributed among the members of the
company. It is the return on investment in shares of a company”.
The types of Dividend
Policies are briefly explained as follows: -
1. Conservative
Dividend Policy: -The
Company pays a lower dividend rate even in those years where it makes high
profits. A larger share of profits is transferred to reserves. During the
period of inadequate profits or absence of profits, the company may not pay
dividend at all.
2. Liberal
Dividend Policy: -The
Company pays a higher rate of dividend, even in those years when it makes low
profits. A lower share of profits is transferred to reserves. During the period of inadequate profits or
absence of profits, the company may pay
dividend as per the Provisions of Companies Act.
3.
Stable Dividend Policy:
-The dividend paid is more
or less stable. The dividend remains more or less same irrespective of the rate
of profits.
4.
Fluctuating Dividend Policy:
-Most of the companies
adopt fluctuating dividend policies. The dividend varies with the rate of
profits. If the profits increase, he rate of dividend goes up and vice versa.
5. Regular
Dividend Policy: -A
company may adopt a regular dividend policy. In this case, dividend is paid
every year, irrespective of whether the company makes a profit or loss. Even of
the company makes a loss in one year, it will pay the dividend out of
accumulated profits or reserve. However, such policy must follow the provisions
of the companies Act.
6. Interim
Dividend Policy: -The Company may adopt an interim dividend policy. In addition to
regular final dividend, a company may have a policy to pay interim dividend in
between two annual general meetings. However, to pay interim dividend, there
must be a provision in the articles of associations.
