Most of the shareholders of Vimal Ltd. are retired persons who depend upon a regular income from their investments. So the company makes sure that at least a certain amount is paid as dividend every year.
Which factor affecting dividend decision is shown here?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Shareholders' preference
Option (1) Stability of dividends — Incorrect. Under this factor, companies keep the dividend per share steady and raise it only when earning power has truly gone up. The case is about what the shareholders need.
Option (2) Stock market reaction — Incorrect. A rise in dividend is seen as good news and share prices go up; a fall can pull them down. Vimal Ltd. pays for its shareholders' needs.
Option (3) Amount of earnings — Incorrect. Dividends are paid out of current and past earnings, so earnings decide how much can be paid. The case says nothing about the size of the profit.
Option (4) Shareholders' preference — Correct. Management must keep in mind what the shareholders want. Some shareholders depend on a regular income, so if they want at least a certain dividend, the company is likely to pay it. Vimal Ltd.'s retired shareholders are such a group.
NCERT (2026-27 Edition): “Factors Affecting Dividend Decision … (f) Shareholders’ Preference: While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard. If the shareholders in general desire that at least a certain amount is paid as dividend, the companies are likely to declare the same. There are always some shareholders who depend upon a regular income from their investments.” |