In a public listed company, the spread of shareholding is wide. Because of this diversified shareholder mix, any dividend payout will disappoint at least some of the shareholders. Therefore the main question is whether a company’s choice of dividend policy can affect its share price.

To answer the question, we need to understand the different schools of thought:

• Traditionally, we have the “ bird-in-the-hand view” that shareholders would like companies to pay high dividend. It augur well the thinking that “immediate” dividends over less certain and more distant capital gain;

• Another school takes the opposite stance whereby shareholders prefer capital gains over dividends and hence low payout ratios, because capital gains are taxed at a lower/zero rate than dividend;

• The third school of thought maintains that a company’s stock market value is relatively insensitive to its choice of dividend policy. Accordingly, as dividend is a passive decision, hence management should first determine its capital investment program and then pay out as dividends whatever cash is left over. [ Merton Miller & Franco Modigliani’s theory];

• There is no correct answer however, there is a strong trend to believe that dividend policy or changes plays a very important role as it is able to signal to the existing or potential investors regarding changes in management’s expectations as to the company’s future earnings.

From the Malaysian perspective, we can see more listed companies are establishing higher dividend payout ratio to satisfy its existing and potential investors.

Nevertheless, as part of our financial strategy, financial executives need to strive to balance the desires of all of its shareholders against one another. As there no panacea to cure all shareholders desires, the company perhaps should wherever possible review the range of feasible target payout ratios together with the range of customary payout ratio and any special shareholder mix consideration.

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