Dividends policy

Legal restrictions: How easy is it to raise new equity

- Cannot distribute dividens if for the company?
company is under chapter 11
- Cannot distribute dividends if
company is not generating Access to
profits Watch legal capital
Other: restrictions markets
- Covenants Companies with high growth
rate should be more
conservative distributing
Understanding tax rates dividends
on dividends vs tax rate Growth rate A more mature business has
on capital gains is critical of the more visibility over cash
to define best way to Pay attention company flows generated and needed,
remmunerate shareholders to tax
therefore can be more
considera-
aggresive with its dividends
tions
policy

Reduce cost of Capacity to

agency and send maintain A cut-back in dividends has a very
information to the dividends negative effect
A dividend creates discipline in costs market Before distributing a dividend
and hence reduces costs of agency
make sure the company can
Paying dividens sends information to maintain it in the future
the market about the financial
situation of the company
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