CA Intermediate · Financial Management and Strategic Management · Dividend Decision
A company pays dividends only from profits and prefers a stable rupee dividend per share even when earnings fluctuate, so shareholders see a predictable income. This practice is best described as:
This is a stable dividend policy, where the firm maintains a predictable dividend per share despite fluctuating earnings. It differs from a residual policy, under which dividends equal leftover earnings after financing investments and therefore vary from year to year.
- AA stable dividend policyCorrect
- BA residual dividend policy
- CA zero dividend policy
- DA stock dividend policy
Explanation
A stable dividend policy pays a steady or gradually rising amount per share regardless of short-term earnings swings, giving investors certainty. A residual policy pays only what is left after funding positive-NPV projects, which makes dividends fluctuate.
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