What is the policy of residual dividends?

The residual dividend policy is a means of calculating dividends based on the amount of equity that remains after the capital expenditure associated with the investment. The approach calls the company's cash flow to fulfill its current financial obligations and then issues dividends to investors on the basis of the rest, or what remains after these obligations are fulfilled. Most companies use a specific formula to determine what percentage of the rest is used in the calculation of dividend payments.

One of the advantages of using residual dividend policies is that the arrangement tends to support the ongoing financial security of business. This is important for investors who plan to hold stocks issued in the long term. Since the company first pays its capital expenditure, then it will move to determine the amount that will be paid in dividends, the company is likely to remain stable, holding a stable credit rat in general is considered to be a good risk. That againIt means that shares issued by a company are more likely to maintain their value and perhaps appreciate gradually.

for business, using residual dividend policy makes it easier to maintain operation without having to engage in any type of creative accounting processes. Since capital expenses are paid from cash flows, it is less necessary to borrow to continue the basic operation. Depending on the power of cash flow, it may be possible to cover all relevant expenses, issue dividends using this remaining or rest after settling capital expenditure for the current period, and even cancel funds to assist in future expansion projects. Companies of all sizes and types can use this approach to issue dividend payments because it allows businesses to calculate payments in Aziž, which is less likely to cause an adverse effect on the kernel.

Details of how dividends are calculated using a residual dividend policy will depend on how society decides to structure the process at the time of shares. Usually there are certain differences based on the types of shares issued by companies, while preferred shareholders receive dividends calculated by one method and other investors using a different method or percentage. One of the potential disadvantages of the use of residual dividend policy is that if there are not many remnants to settle after settlement of capital expenditure, it will be less dividends for shareholders.