When companies make earnings, they should decide to reinvest in the company or payout to the shareholders out of earnings. Decision process on how much to reinvest and how much to payout is dividend policy. If dividend policy does not affect the change of the company value, dividend policy dose not matter.According to the research by Miller and Modigliani, in the perfect market assumptions, there is no relationship between dividend policy and company value. But, in reality, there is no perfect market. So, dividend policy matters.Before going further, it’s good to see the empirical evidence on dividend policy by watching US corporations.There are six observations.First, Corporations typically pay out a large proportion of their earnings as dividends.In the case of US, the average payout rate was 72% during 1871~1945, the ratio was 51% during 1946~2000.Among the corporations, there are companies which pay no dividend and some corporations pay out more than what they earn.Second, The ratio of stock repurchase is increasing more than cash dividends in resent decades.Third, Individuals pay a large amount of tax on dividends, even though there are another ways of paying earnings to investors which may reduce tax. It’s so called ‘dividend puzzle’(Fischer Black, 1976)Fourth. Dividends are sticky. Companies don’t want to change their payout ratio on a year-on-year basis.Fifth. The market reacts positively to increases in dividends and negatively to decreases in dividends. This observation is the reason why dividends are sticky.Sixth. There are differences in the magnitude of dividend payouts across countries.For example, the payout ratio is low for Korea and Philippines payout and high for Hong Kong, Singapore and Thailand. Among developed economies, the US and UK have high payout ratios, while Denmark, Canada and Finland have much low payout ratios.There are a few types of dividendsFirst, Cash dividend or stock dividend. The former is the dividend paying out as cash, the latter is the dividend paid as a stock. Stock dividend increase the number of outstanding shares. So, the price of share decrease.Second, Dividend can be a regular dividend or a special dividend. In the United States, usually a dividend is paid quarterly as a regular dividend. A special dividend is paid irregular intervals.Finally, There is a liquidating dividend which is paid when there is excess retained earnings.We usually measure the dividends using one of followings.1. Dividend yield = Annual Dividends per share / Price per share2. Dividend Payout Ratio = Dividends / Earnings = 1 – Retention Ratio