Importance of Dividend Policy in Corporate Finance

Corporate Finance

Table of Contents

INTRODUCTION
Corporate finance is the financing branch that deals with the companies that how
they manage funding resources, investment decisions and capital structuring (Booth, Cleary and
Rakita, 2020). The primary focus in corporate finance is the maximization in shareholder capital
by long and short-term money management and the execution of different strategies. The
activities of corporate finance scope from financial decisions to wealth management. This report
based on the dividend performance of Kellogg’s Company which is American based food
manufacturing multinational Company. Currently Kellogg’s manufacture and distributed their
products in 180 countries and offer wide range of products to attract customers. This report
covers several topics such as importance of dividend decision, review company’s dividend
policy and performance over last five years. In addition, evaluate major dividend policy and
recommend for the future.
MAIN BODY
1. Explain the importance of dividend policy
A dividend is the allocation of the profits from a corporation to a subset of its owners, as
decided by the boards of directors of the organization. Usually, ordinary stockholders of
dividend-paying firms are qualified as long since they own the shares by the ex-dividend date.
Dividends can be expected to pay out in cash or even in the form of extra stock. The
shareholders must accept the dividend via their right to vote. Even though cash dividend
payments are the most frequent, dividends may also be issued as company shares or other assets.
Diverse hedge funds and exchange-traded funds (ETF) also make investments alongside firms.
A dividend policy is the strategy a company utilizes to construct its shareholder quarterly
dividend. In theory, a few other researchers suggest the dividend policy is meaningless because
when they need financial resources, shareholders can sell a portion of their shareholdings or
investment. This would be the theory of dividend irrelevance that also concludes that dividend
payouts have minimal effect on the price of a stock (Coles and Li, 2019). Dividends are mostly a
part of a larger strategy for a firm. People are not under obligation to accept profits to
shareholders. The three forms of dividend payout such as stable, constant and residual. While
companies think that businesses are not expected to pay dividends, others believe it is a leading
indicator of the financial stability of the individual company.
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