Advantages of Dividend payment

Advantages of Dividend payment

Advantages of dividend payment can be explained in terms of positive signal to market, market price, strong financial position, confidence of board of director, strong financial position reflection.

1.    Investor Confidence

First advantage of dividend payment is investor confidence improvement. Investor feels positive and confident about his investment decision, because his decision is providing regular return.

2.    Market Price

Second advantage of dividend payment is to maintain or increase the market price of share. The market analyses show that dividend payment company’s share prices are traded at higher price, because it is providing regular return to the investors.

3.    Funds Arrangement 

Third advantage of dividend payment is easy fund arrangement from the market. Dividend payment shows strong liquidity position of the company, and therefore financial institutions feel confident that their loan is risk free. (Low risk).

4.    Strong Financial Position

Dividend payment reflects the strong financial position to outside work. A number of advantages can be gained from this outlook of the entity. It is important to remember that only a profit making company with liquidity can afford to pay dividend.

5.    Confidence of Board of Director

Dividend payment reflects shows the confidence of board of director on the company performance and company future. Board of director believes that company is going to perform well in future and, therefore they can pay dividend.