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Decision making on Dividend Policy

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All the profits that were earned by the organisation on the basis of business performed by the organisation belongs to the owners of the organisation. 

However in the case of "Corporate Organisation" shareholders are the owners of the company and so therefore are eligible for the profits in the form of dividends. So far there is no such rule or law that specifies the amount of the profits that should be shared by the way of dividends and how much should be retained by the company.

A firm can do both- distribute a part profits and retain other for the ongoing expenses and planning so as to expand the business further and earn more profits. E.g.- A firm can distribute the 50% of profits and retain 50% of profits for the business operations.

There are both pros and cons of dividends. Since announcing dividends can withdraw money from the business and hence may affect business operations. On the other hand if a firm do not announce the dividends then it can lose the shareholders confidence.

Therefore a company should take the decision regarding the payments of dividends is such a way that neither the shareholders are likely to be offended nor the organisation goals get hampered.

Therefore it becomes a very important strategic decision to announce dividends.

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