Debt-equity ratio is also affects the
dividend payout, if firm/organization having high leverage so they have to pay
more amount as a interest so low amounts remains with equity shareholders so
company may pay low rate of dividend and vice versa.
An important determinant of dividend payment is
current revenue representing the ability of companies to pay dividends.
Validity has a positive relationship with dividends. In the research survey, we
use post-tax profit (PAT), return on equity (ROE) and return on net worth
(RONW) as proxies for improving the profitability of companies.
Brittain (1966) suggested that cash flow (net
recurring profit after tax + depreciation) is an appropriate measure of our
dividend payout ratio. In addition, regulations and accounting practices
relating to depreciation allowances remain unchanged, and such cash flows may
be a better indicator of real revenue than net income.
The details of the dividend equation of Lintner
(1956) suggest that a delayed dividend is the first explanatory variable of the
dividend policy (initially net profit). The rationale for a dividend that is
delayed as a determining factor for dividend policy is provided by the speed of
the adjustment mechanism that an entity seeks to achieve a certain desirable
payout ratio over the long term. In order to comply with a stable dividend
policy, it is necessary to make sure that past dividend trend influences the
• Debt / Equity Ratio
Demand for external funds usually occurs in
businesses due to constraints imposed by internal resources. The higher the
internal liquidity assuming the investment requirements, the lower the demand
for borrowings and vice versa. This means that the higher the dividend, the
greater the demand for borrowing and the higher the debt ratio. Companies with
high debt ratios should pay lower dividends, as they have already taken forward
the cash position to pay debts. Reduction of dividend payment may result in the
avoidance of capital borrowing.
• Sales growth
An increase in sales results in an increase in
working capital, which could adversely affect dividend payment. Several
research studies showed growth in sales as opportunities for growth and
investment opportunities to gain growth opportunities. This indicates that
there is a negative relationship between dividend and sales growth.