Constant payout ratio and Low regular plus extra

Constant payout ratio

Another form of stable dividend policy is constant target payout ratio. The term payout refers, as already mentioned, to the ratio of dividend to earnings of the percentage share of earnings used to pay dividend. A stable dividend payout ratio implies that the percentage of earnings paid out each year is fixed Accordingly, dividend would fluctuate proportionately with earnings and are likely to be highly volatile in the wake of wide fluctuations in the earnings of a firm decline substantially or there is loss in a given period, the dividends accordingly to the target payout ratios, would be low or nil. To illustrate, if a firm has a policy of 50%target payout ratios, would be low or nil.

Low regular plus extra

Under this policy both dividend policy (constant dividend per share and constant dividend payout ratio) are included. Under this policy, a firm usually pays a constant dividend to the shareholders and when the firm swells, additional or extra dividend is paid over and above the regular dividend per share. Generally this type of policy is mostly followed by those companies whose stockholders prefer at least a certain account of regular dividends.