Formulating a Dividend Policy for a Firm

Abstract

This study seeks to identify key factors in formulating a dividend policy for a firm. We revisit the theory of stock valuation and identify and explore the impact of critical factors on a firm’s dividend policy. Next, we develop a framework and investigate financial data requirements to formulate such a policy and illustrate a methodology with an example of a case study for a firm which had never paid dividends but plans to change its policy. We recommend further research into issues in development and implementation of a firm’s stock repurchase plan in lieu of or to complement a dividend policy.