No! This is because, A dividend must be paid from the company's distributable profits, and it will be proclaimed at a general meeting of the company or by a resolution of the directors, depending on the type of dividend. A dividend is due and payable once it has been declared. Dividends can be paid at any time and at any regularity throughout the year, as long as your company is profitable enough to do so. You must verify that the firm profits, net of corporation tax, cover all dividend distributions. According to the DDM, the value of a company is computed as a ratio in which the numerator is the next year dividend and the denominator is the discount rate less the dividend growth rate. To utilize this model, the corporation must pay a dividend, which must grow at a consistent rate over time. Professor James E. Walter claims that the dividend policy chosen almost always has an impact on the enterprise's value. His model clearly demonstrates the significance of the relationship between the firm's internal rate of return (r) and cost of capital (k) in choosing the dividend policy that maximizes shareholder wealth. Myron Gordon developed a popular model that explicitly links the firm's market value to its dividend policy. The market value of a share (Pq) is equal to the present value of an endless stream of dividends to be received by the share, according to Gordon's dividend capitalization model. According to Modigliani and Miller (M-M), a company's dividend policy is useless because it has no impact on shareholders' wealth. They claim that the firm's value is determined by its earnings, which are the product of its investment policy. As a result, when a firm's investment decision is made, dividend decision, the split of earnings between dividends and retained earnings has no bearing on the firm's value. After paying its creditors, a firm might utilize some or all of its remaining revenues to distribute dividends to its shareholders. However, if a company is short on cash or needs cash for reinvestment, it can choose to forego paying dividends. When a corporation declares a dividend, it also establishes a record date, after which all shareholders who were registered on that date are eligible to receive dividends in proportion to their shareholding. Within a week or so, the corporation normally mails the payments to stockholders. Stocks are generally purchased or sold with dividends until two business days before the record date, at which point they become ex-dividend. According to a recent study, dividend-paying companies in India declined from 24% in 2001 to around 16% in 2009 before increasing to 19% in 2010. Some firms in the United States, such as Sun Microsystems, Cisco, and Oracle, do not pay dividends and instead reinvest their entire profit back into the business. The underlying worth of a company's share price is usually unaffected by dividend payments. Companies with a fast growth rate and those who are still in the early stages of their business rarely pay dividends since they want to reinvest the majority of their profits to assist them continue to grow and expand. Established corporations, on the other hand, attempt to reward loyal investors with regular dividends. Companies pay out a portion of their profits to shareholders as dividends, while keeping the rest to reinvest in the business. Dividends are payments made to a company's shareholders. Dividend yield refers to the amount of money invested in a firm that comes back to investors in the form of total dividends. In most cases, it's given as a percentage. Dividend Yield=Cash Dividend per share/Market Price per share*100 is the formula for calculating dividend yield. Assume a business with a stock price of Rs 100 declares a Rs 10 per share dividend. In that situation, the stock's dividend yield will be 10/100*100=10%. During volatile times, high dividend yield stocks are strong investment selections because they offer good payment options. They are suitable for investors who are wary about taking risks. The caveat is that investors should look into the company's price as well as its dividend-paying history. Normally, companies with a high dividend yield do not maintain a large amount of their income as retained earnings. Their securities are referred to as income securities. This is in contrast to growth stocks, which keep a large amount of their profit in the form of retained earnings and spend it to expand the company. Dividends are tax-free in the hands of investors, therefore investing in high dividend yield stocks produces a tax-saving asset. Dividend stripping is often used by investors to save money on taxes. Investors buy equities immediately before a dividend is declared and sell them after it is paid out in this procedure. They obtain tax-free dividends as a result of this. After a dividend is handed out, the share price usually drops. Investors incur capital loss when they sell a stock after the dividend is paid out, which they can offset against capital gains.
Step-by-step explanation
Reference
Raza, H., Ramakrishnan, S., Gillani, S. M. A. H., & Ahmad, H. (2018). The effect of dividend policy on share price: A conceptual review. International Journal of Engineering & Technology, 7(4.28), 34-39.
Ofori‐Sasu, D., Abor, J. Y., & Osei, A. K. (2017). Dividend policy and shareholders' value: evidence from listed companies in Ghana. African Development Review, 29(2), 293-304.
Fidrmuc, J. P., & Jacob, M. (2010). Culture, agency costs, and dividends. Journal of Comparative Economics, 38(3), 321-339.
