One of the elements influencing investors’ decision making is dividing companies’ profits and cash dividend. In this article we examine crucial elements that affect cash dividend in Iran and investors’ decisions in this regard. Among the elements pointed out in this article, we can name the inflation rate, the existence of institutional investors, time-table for receiving the dividend, shareholders’ return on equity ratio (ROE), and tax.

Institutional investors for instance pension funds, Social Security Organization, insurance companies, etc, are the most important part of shareholders` composition of companies present in the Iranian capital market. Many of these companies are dependent upon cash dividends of their affiliate companies for their payments. This factor leads these companies to prefer having higher cash dividends in order to cover part of their cash outflows.  In many general assemblies, it is the institutional investors who make the final decision regarding cash dividends. This issue is particularly more evident in companies that have been transferred by installments and at predetermined rate of return and timetable.

One of the most influential factors regarding cash dividend is its repayment time table as well as the inflation rate. According to Commercial Law of Iran, companies have an eight month deadline to pay their dividends since the general assembly, and this issue results in retaining the dividend within the company and taking maximum advantage from such opportunity by the companies. This issue, considering the non-payment of such opportunity cost to shareholders, becomes a negative factor in investors’ decision making. Bearing in mind the long-term trend of the double-digit inflation rate in Iran, the opportunity cost for investing in Iran has been evaluated to be high and investors prefer to receive dividend per share and then invest it again by themselves. As a result, many small and institutional investors prefer high levels of dividends.

Investors’ preference regarding cash dividend is also influenced by companies’ profitability. The Return on Equity ratio (ROE) in Iran (the average of Tehran Stock Exchange and Farabourse) is equal to 18.59, while being equal to 19.70 for Tehran Stock Exchange. Considering that this rate of return is lower than that expected by investors, they prefer not to accumulate their capital in companies and instead receive cash dividend.

Regarding taxes, it should be kept in mind that earnings per share is not taxable and this leads the investors to become indifferent towards receiving cash dividend or accumulating earnings inside the company.

In sum, considering the above mentioned factors and specifically ROE, investors in Iran prefer not to receive cash dividend in order to accumulate dividend within the company. A cash dividend of 75.18 percent is a testimony to such claim.