Business Studies Two Questions on Dividend Policy and Multinational Corporations

Stockholders will usually purchase stocks with the aim of creating a return in their money. The return may be created for the stockholder in two ways; firstly, through the growth in the value of the firms stock price, which result in a profit when the share is sold, and secondly in the form of dividends which are a distribution of the profits of the firm paid out to the stock holders.

The dividend policy of a firm is the approach that they adopt towards the cash disbursements from the firm to the shareholders. The distribution policy can be considered in several contexts. The first considering may be the way in which the firm chooses to use it profits and cash. For firms that are pursuing aggressive growth strategies the policy may be to retain the profits...

Likewise, when a firm faces a difficult time and a reduction in profits the dividends may be reduced to reflect the decrease and support and been seen as prudent by management in order to support the firms recovery through reinvestment. Reinvestment of profits can support growth and may reduce the need to raise money from external sources. Conversely, firms that are in established industries and are doing well may have a policy to make payments to their shareholders. It is often need that when a firm has a dividend policy of making regular and constant payments, this can have a stabilizing impact in the stocks market price. If investors know the will be getting dividend payments, the perceived risk associated with the stock is reduced, which can reduce the potential volatility of the impact on supply…