A residual dividend policy is a strategic approach to managing a company's profits. By retaining profits rather than immediately paying out dividends, the capital can be reinvested in order to generate higher long-term returns. Companies that maintain a residual dividend policy prioritize investments in the company’s future—such as research and development, industrial upgrades, and new technology—over immediate dividend payments.

The residual dividend policy enables management to pursue chances for improved profitability at the expense of reducing near-term dividend payments. By focusing on areas of growth that have potential for creating long-term value, the company's stock price may eventually increase, offsetting any short-term reduction of dividends. This can lead to additional capital appreciation and higher earnings per share, both of which are generally viewed as positive signs by investors.

The opposite of a residual dividend policy is an immediate dividend policy, in which companies pay out dividens immediately upon receiving their profits. A company that applies an immediate dividend policy minimizes reinvestment and focuses on distributing money to shareholders. However, this approach does not contribute to growth of the company and may affect the company's potential for capital appreciation.

Overall, a company's decision to adopt a residual dividend policy depends on their unique set of circumstances and investors' preferences. Despite fluctuation in dividend payments in the short-term, the long-term investor may be best suited to the policies that involve capital retention and reinvestment that lead to strong capital gains and appreciation in the long-term. By carefully selecting investments and focusing on growth, a company can make the most of a residual dividend policy.