Fixed Dividend Payout Policy Advantages of Fixed Dividend Payout Policy

The so-called fixed dividend payout ratio policy is a policy in which a company determines a fixed dividend payout ratio and pays out dividends from net income at this ratio over time. Here is my carefully organized information about fixed dividend payment policy, I hope it will help you!

The theoretical basis of fixed dividend payout ratio policy

The theoretical basis of fixed dividend payout ratio policy is ? A bird in the hand? theory. The theory that reinvesting with retained profits brings investors a great deal of uncertainty about the return, and the investment risk will further increase over time, so investors prefer to get a fixed rate of dividend income now. If there are stocks A and B, which are fundamentally the same, and stock A pays dividends while stock B does not, then the price of stock A is higher than the price of stock B, which does not pay dividends. Similarly the price of stock with a high dividend payout ratio must be higher than the price of stock with a low dividend payout ratio. Clearly, the dividend payout pattern is correlated with the market price of the stock.

Calculation of Dividend Payout Ratio

The formula is:

Dividend Payout Ratio = Dividends per Share? Net Earnings per Share?100%

Or = Total Dividends? Total Net Profit

Dividend Payout Ratio Retained Earnings Ratio=1

Commercial Press English-Chinese Dictionary of Securities and Investments explains: dividend payout ratio English: dividend payout ratio; payout ratio. also known as: dividend yield. Reflects the relationship between the company's dividends and earnings ratio. Calculation formula:

dividend payout ratio = dividend payout ratio/net profit?100% or dividend payout ratio = annual dividend per share/earnings per share?100%

In the United States is used more. Usually startups and small companies have a low distribution ratio. Higher distribution ratios indicate that the company does not need more money to reinvest, and utility stocks all have higher distribution ratios.

In addition, the traditional dividend payout ratio reflects the relationship between dividend payments and net income, and does not reflect the source and reliability of the cash encouraged. Therefore, the theory of corporate finance has modified this indicator.

Cash dividend payout ratio = cash dividends or distributed profits? Net cash flow from operations

Reflecting the relationship between net cash flow from operations and cash dividends for the period, the lower the ratio, the greater the ability of the company to pay cash dividends. The modification of this indicator is more reflective of the source and reliability of cash to pay dividends than the traditional dividend payout ratio.