(i) Stability of earnings: The factors affecting the divident decisions are when a company has a stable and a smooth earning, it is in a position to distribute higher dividend as compared to the companies who have unstable earnings.
(ii) Growth opportunities: Companies aiming for a higher growth level or expansion of operations retain a higher portion of the earnings with themselves for re-investment. Thus, the dividend of such a company is smaller as compared to the companies with lower growth opportunities.
(iii) Cash flow position: Dividend payments require cash outflow. If a company has deficiency of cash, then the dividend will be lower as compared to the company which has more liquidity. Even if a company has higher profits, it will not be able to distribute high dividends if it does not have enough cash.
(iv) Taxation policy: Taxation policy plays an important role in deciding the dividends. If the taxation policy is such that a high rate of tax is levied on dividend distribution, then the companies are likely to distribute lower dividends. On the other hand, they might prefer to distribute higher dividends if the tax rate is low.