1. Stability of earning: A company having stable earning is in a position to declare more dividends and vice versa.
2. Growth opportunities: If the company has more opportunities for growth, it will require more finance. In such a situation, a major part of the income should be retained and a small part of it should be paid as dividend.
3. Cash flow position: The payment of dividend results in outflow of cash. It is possible that the company may have enough income but it is equally possible that it may not have sufficient cash to pay dividend. In this way, the cash flow position of the company is a factor that determines the dividend decision. The better the cash flow position of the company, the better will be the capacity of the company to pay dividend.
4. Taxation policy: The dividend decision, to some extent, depends on tax policy. If the tax rate on dividend is higher it would be better to declare less dividend and vice versa. Nowadays in the hands of shareholders the dividend income is tax free. From this angle, shareholders like to get higher dividend.
