You need to understand factors affecting dividend policy because you may find that the firms dividend policy imposes limitations on planned expansion, replacement, or renewal projects. Many individual investors buy common stock for the anticipated cash dividends. From a personal finance perspective, you should understand why and how firms pay dividends and the informational and financial implications of receiving them. Such understanding will help you select common stocks that have dividend-paying patterns consistent with your long-term financial goals. - Explain with Examples.