DOI: 10.36347/sjahss.2014.v02i06.005

Pages: 877-882

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. Thus, the alternative uses of net earnings- dividends and retained earnings- are competitive and conflicting. Consequently 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.” This paper will examine the relationship between a firm’s dividend policy and its earnings with the help of Lintner’s Model. The study shall be mainly based upon secondary data which shall be collected from annual reports of companies, related websites and PROWESS. The study shall cover the period from 2006-2010. The collected data will be tabulated and analyzed with suitable statistical tools.