Dividend Policy
Firms pay dividends for several reasons; however the main reason is to reward shareholders for investing in the firm. Dividends send a signal to current and future investors that the company is financially stable. It also tells investors that they are sharing in the firm’s profits, and encourages them to continue with their investment. There have been several debates regarding the benefits of consistent dividends for the investor. No one theory is conclusive concerning whether or not dividends should be paid, however they all agree that the company’s dividend policy should be based upon the shareholder’s preference.