ABSTRACT:
Dividend decision refers to the quantum of profits to be distributed as dividend among the shareholders. It involves the decision to pay out earnings to the shareholders or to retain them for reinvestment in the firm. There is a reciprocal relationship between retained earnings and cash dividends i.e. larger retentions mean lesser dividends whereas smaller retentions imply larger dividends. As the firm has to balance between the growth of the company and the distribution to the shareholders, the amount of dividend payable to the shareholders depends upon the kind of dividend policy being pursued by the company. Dividend Policy is one of the most important financial policies, not only from the view point of the company but also from that of shareholders, the consumers, the workers, and the government. Value of the corporate securities depends to a great extent on dividend. It was literally said on Wall Street, “the purpose of a company is to pay dividends”. Today, the investor’s view is a bit more refined; it could be stated, instead, as, “the purpose of a company is to increase my wealth.” The study is mainly based upon secondary data which has been collected from annual reports of companies, related websites and PROWESS database. The study covers the period of ten years i.e. 2002-2012 and consist the sample of 342 companies from BSE-500 index. First the sample has been categorized into various classes of payers and then the relationship between a firm’s dividend policy and its earnings was examined with the help of Lintner’s Model.