Dividend Policy Essay Example | Topics and Well Written Essays - 1250 words

Dividend Policy - Essay Example Various analysts have examined that the dividend policy could highly affect shareholders’ wealth (Gul et al., 2012). The ability of a firm to distribute cash and increase the wealth of shareholders depends on the earnings capability of the firm and its capacity to raise fund from the external sources (Brealey, 2012). There are two ways of raising funds which are debt and equity (Kelly, 2012). Debts are the instrument where the holder gets a fixed payment along with interest (Denis and McKeon, 2012). On the other hand, the equity holders are the owner of the company to the extent of their holding (Hillier et al., 2011). However, as per the Modigiliani and Miller (M&M) model, the dividend policy of an organization has negligible or no effect on the shareholder’s wealth because the firm value is independent of its dividend policy. Moreover, in the accounting process, the dividend paid or received is calculated in cash flow which is very important for calculating the enterp rise value through discounted cash flow method (Brooks and Mukherjee, 2013). Policy Structure of Tesco PlcTesco Plc is one of the largest retailers globally. It is a British multinational, founded in 1919 and is headquartered in England. The payment of dividend has been consistent for 5 years. Nevertheless, in recent days, the wealth of shareholders has been weak as the profit generation of Tesco has been low, but it recovered in 2013-14 as the dividend paid is  £1,193m in comparison to  £1,186m in 2012-13.