Dividend policy determines the division of earnings between payment to stock holders ad re-investment in the firm. It therefore looks at the following aspects:

i). How much to pay – this encompassed in the four major alternative dividend policies.

           Constant Amount Of Dividend Per Share

• Constant Payout Ratio

• Fixed Dividend Plus Extra

• Residual Dividend Policy

ii) When to pay – paying interim or final dividends

iii) Why dividends are paid – this is explained by the various theories which has to determine the relevance of dividend payment i.e.:

               Residual dividend theory

• Dividend irrelevance theory (MM)

• Signalling theory

• Bird in hand theory

• Clientele theory

• Agency theory

iv) How to pay: cash or stock dividends.