Stability in Earnings
A company having higher and stable earnings can declare higher dividends than a company with lower and unstable earnings.
Growth Opportunities
Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. The dividend declared in growth companies is, therefore, smaller than that in the non-growth companies.
Cash Flow Position
Dividend involves an outflow of cash. Availability of enough cash is necessary for payment or declaration of dividends.
Taxation Policy
If the tax on dividends is higher, it is better to pay less by way of dividends. But if the tax rates are lower, higher dividends may be declared. This is because as per the current taxation policy, a dividend distribution tax is levied on companies. However, shareholders prefer higher dividends, as dividends are tax free in the hands of shareholders
