Factors affecting dividend decision are:
(i) Earnings: Earnings are a major determinant of dividend decision as dividends are paid out of current and past earnings.
(ii) Stability of earnings: It is another factor affecting dividend decision as a company having stable earnings is in a position to declare higher dividends.
(iii) Stability of dividends: Companies generally prefer to maintain stability of dividends while taking dividend decision.
(iv) Growth opportunities: If a company has good growth opportunities, it pays out fewer dividends.
(v) Cash flow position: A good cash flow position is necessary for declaration of dividend.
(vi) Shareholders’ preference: It is kept in mind by the management before declaring dividends.
(vii) Taxation policy: It affects the dividend decision as a higher dividend distribution tax will lead to lesser dividend payout.
(viii) Stock market reaction: The possible stock market reaction on the share price to dividend policy is one of the important factors affecting dividend decision.
(ix) Access to capital market: While taking dividend decision, companies take into consideration their access to capital market.
(x) Legal constraints: Certain provision of the Companies Act i.e., legal constraints place restrictions on payout of dividend.
(xi) Contractual constraints: While taking dividend decision, companies keep in mind the restrictions imposed by the lenders i.e., contractual constraints.