1. DIVIDEND POLICY TRADITIONAL MODEL (GRAHAM & DODD)
Stock Market places more weight on dividends than on retained earnings.
Weight attached to Dividends is equal to 4 times the weight attached to retained earnings.

2. DIVIDEND POLICY TRADITIONAL MODEL( CONTD):- P = m ( D + D + R ) 3
= m 4D mR
WHERE m = A MULTIPLIER
D = Dividend per share
R = Retained earnings. EARNINGS= D + R
P = market price per share

3. DIVIDEND POLICY TRADITIONAL MODEL:- FINDINGS:-
A LIBERAL PAY OUT POLICY HAS A FAVOURABLE IMPACT ON THE STOCK PRICE.

4. DIVIDEND POLICY WALTER MODEL:- P = D + (E – D) r/k k
P = market price per share
D =dividend per share
E = earnings per share
R = rate of return on investments
K = cost of capital

5. DIVIDEND POLICY FINDINGS under Walter model:
When r > k, price per share increases as the dividend payout ratio decreases.
Optimal Payout ratio for a Growth firm
( r > k) is NIL
WHEN R = K, price per share does not vary with changes in Dividend Payout ratio.
Optimal Payout Ratio for a normal firm( r = k) is IRRELEVANT

6. DIVIDEND POLICY FINDINGS UNDER WALTER MODEL:-
When r < k , price per share increases as the Dividend Payout Ratio increases.
Optimum Payout Ratio for a Declining firm ( r < k) is 100%

7. DIVIDEND POLICY GORDON MODEL:- Pc = Ye ( 1 – b) k - b r
Pc = Price per share at the beginning of the year
Ye = Earnings per share at the end of the Year
(1 – b) = Dividend Payout Ratio
b = Retention Ratio
k = Rate of return required by shareholders
r = rate of return on investment

8. DIVIDEND POLICY FINDINGS IN GORDON MODEL:- SIMILAR TO WALTER MODEL:
Optimum Payout Ratio for Growth firm
( r > k) = NIL
The Payout Ratio for a normal firm (r =k)
Is IRRELEVANT
The declining firm ( r < k) attracts 100% Payout ratio

9. Dividend policy JOHN LINTNER MODEL:-
Most firms think in terms of proportion of earnings to be paid as Dividend rather than proportion to be ploughed back.
Firms try to reach out to the target pay-out ratio gradually over a period of time as stock holders prefer a steady progression in dividends.

10. DIVIDEND POLICY LINTNER MODEL:- Dc = CREPSc + (1 – C) D(c-1)
Dc = Dividend per share for Current Year
C = adjustment rate
R = target payout rate
EPSc = Earnings per share of Year c(current nyr)
D(c-1)= Dividend rate per share for year c-1(last yr)

11. DIVIDEND POLICY FINDINGS OF LINTNER MODEL:-
Current Dividend depends on partly on current earnings and partly on previous year dividend.
Dividends can be described in terms of a weighted average of past earnings.

12. DIVIDEND POLICY
MODIGLIANI & MILLER MODEL(MM MODEL)
DIVIDEND Policy is irrelevant for determining market price of share.
Market is perfect-investors go by earning power of the firm
Investments & financial decisions are independent.
Cost of Internal & External financing are equal.

13. DIVIDEND POLICY MM-MODEL(BASIC VALUATION MODEL):- Pc = De + Pe 1 + k
Pc= current market price per share
K = cost of capital
De= dividend to be declared at the end of the year.
Pe = market price at the end of the year.

14. DIVIDEND POLICY FINDINGS OF MM MODEL:-
If Dividend not declared ,Share Price increases
If Dividend declared, Share prices go down correspondingly

15. DIVIDEND POLICY CRITICISM OF MM POSITION:- Higher dividend sentiments
Current income preference
Transaction cost- selling/buying
Taxation- Dividend/ Capital Gains Tax
Investment Policy
Cost of external finance-impact on R/E.

16. DIVIDEND POLICY MM MODEL:- CONCLUSIONS:-
Factors suggesting Liberal Payout Ratio:
Preference of current income
Possibility of imprudent investment
Transaction cost of conversion
Factors suggesting Low Payout Ratio:-
Capital Gains/ tax benefits
Deferred income requirements
Lower cost of retained earnings.

17. DIVIDEND POLICY SUMMARY Dividend Policy depends on a mixture of
Factors as discussed and no single model can be adopted Universally.