The most important motivating factor for the shareholders to make the investment decision is the promise of return. The return may be received in two forms; directly, through cash dividend paid by the company and indirectly through increase in the market value of their equity investment. Payment of dividend in a company not only depends upon the extent of profitability but in itself it is a measure of profitability to the owners of the company. Dividend policy determines what portion of the earnings will be paid out to shareholders and what portion will be retained in the business to finance long term growth. Both growth and dividends are desirable, but they are in conflict. A higher dividend amounts to lesser provision of funds for growth and retention of large earnings leaves a little amount of funds for dividends to r and necessaite the need to establish an optimal dividend policy that has no adverse effects on the future progress of the firm.