The three types of dividends are:
1. Dividend Relevant: This term refers to dividends that are considered important and relevant to investors. Companies that follow a dividend relevant policy place significance on providing regular dividend payments to their shareholders.
This approach is often favored by income-oriented investors seeking a steady income stream from their investments.
2. Dividend Irrelevant: On the other hand, dividend irrelevant signifies the belief that a company's dividend policy does not impact its overall value in a perfect market setting. This theory, proposed by Modigliani and Miller, suggests that the value of a firm is determined by its underlying assets and cash flows, not by its dividend decisions.
3. Dividend Payment: Dividend payment simply refers to the actual distribution of earnings to shareholders in the form of dividends. This process involves the company issuing cash or additional shares to its shareholders as a way to distribute profits and provide a return on their investment.