difference between dividend policy and dividend decision

Many students get baffled when they are asked to differentiate between dividend policy and dividend decision. The answer to this question is very easy but tricky.

Dividend decision is related to the decision as to how much of the earning would be retained and how much will be distributed as dividend. The company decides as to what would be more beneficial to the company.

Dividend policy is related to the way in which the dividend will be distributed to shareholders. So in one way we can say that dividend policy is narrower in concept than dividend decision. Some types of dividend policy are percentage of earning method, fixed percentage every year etc.

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