Whatever profits a corporation elects to pay out to its shareholders are termed as dividends. Unlike the issuance of an estate tax id, etc., they are absolutely at the discretion of the corporation, for it can start, end, increase, decrease, omit or suspend them at any moment. Typically paid quarterly, dividends are decided by the board of directors of the corporation. However, there are certain factors which are in the minds of the directors when they are about to increase the dividends. These count a lot as those involved in the ein for trust after death, etc. They run as follows.

Profit Sharing

The chief most reason is the motive on the part of the directors to share the profit with the share holders. But, they can share only a part of the profit because they also need money to carry on their routine operations and to expand the company itself. Most often, they do so when they are left with spare money after meeting all their expenses.

Increase in dividend pushes up the stock price

The directors tend to increase the dividend because they know that it will push up the stock price of the corporation. For instance, the current dividend yield of a corporation is 5% and the corporation increases it to 10%. The market will adjust the stock price to continue to yield 5%. This is because the investors always like to pay for a higher dividend. It will increase the stock price of the corporation and it will earn more and more profit.

Comparison between the dividend and the inflation rate

Many corporations tempt to increase their dividend at a rate higher than the rate of inflation. This is because investors always like to invest in such corporations as with the high rate of dividend increase. This highly-yielding stock ensures for them a rising income stream that provides them protection against inflation. Keeping all these points in view, most corporations pay small amounts as dividend but always tend to increase them at a rate higher than the rate of inflation.

Keeping the trust of the investors unharmed

Every corporation tries its level best not only to keep the trust of its investors unharmed but also to attract more and more new investors. The timing and the amount of dividends play a crucial role in this context. The more a corporation pays its ever-rising dividends regularly, the more it can keep its shareholders contented and well boosted. So, the directors also keep this very factor under consideration.

Continuity of a good tradition  

Corporations running in high profits pay their dividends on regular annual basis and keep increasing their dividends consistently. This is because they earn ample amount of cash through various operations, which they are not in dire need to spend to grow their volume. In this way they gradually develop a good tradition of paying an ever increasing dividend to their shareholders. In order to enjoy the benefits of this fruitful tradition, they carry on paying the dividends annually. Their directors never think of interrupting this established tradition of their corporation.

The above said are the major factors in the mind of the directors or owners of the corporations when they decide to increase the amount of dividends.