Factors that influence dividend policy Distribution decisions are complicated and involve the understanding of critical strategic factors that affect the policy and value of a firm. Thus, the management of any firm has to consider the constraints on dividend payments, the availability and cost of alternative sources of capital, and other external factors when they create and implement their distribution policy. Based on your understanding of the constraints on dividend payments, identify the type of constraint this condition represents. Assume that all other factors are held constant. Often stipulates that no dividends can be paid unless the current ratio, times-interest-earned ratio, and other safety ratios exceed stated minimums. Impairment of capital rule Preferred stock restriction Bond indenture Along with several constraints, several internal factors within a company and external macroeconomic factors affect a firm's dividend policy. In the table, identify which factors, in general, tend to favor high or low payout ratios. When a firm has a large number of profitable investment opportunities, it will usually have a target payout ratio