Stable dividend policy is followed by prudent management, as it enhances prestige and credit standing of the company and the shareholders also prefer such a policy, as it leads to stability in market prices of shares. Stable dividend means that a certain minimum amount of dividend is paid regularly. It may also mean that dividend is paid regularly by the company, but the amount or rate of dividend is not fixed. However, the former meaning is more acceptable. The stable dividend may take the following forms:
(1) Fixed Amount of dividend per share.
(2) Fixed Share of Profit (Constant Pay out Ratio).
(3) Fixed Total Amount of dividend.
(4) Fixed Percentage of market price of shares.
Constant Pay-out Ratio