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CA Intermediate · Financial Management and Strategic Management · Dividend Decision

A company that pays a fixed ₹5 per share dividend every year even when profits fluctuate, raising it only when earnings have risen to a durable higher level, is following which dividend policy?

This is a stable dividend policy. The firm pays a steady amount per share regardless of short-term profit swings and raises it only when higher earnings look durable. A residual policy, by contrast, pays out only what is left after funding investments, so dividends fluctuate.

  1. AResidual dividend policy
  2. BStable dividend policyCorrect
  3. CZero dividend policy
  4. DRegular stock dividend policy

Explanation

A stable policy pays a steady dividend per share, changing it only when higher earnings are sustainable. A residual policy pays only what remains after financing all acceptable investments, so payouts vary with earnings and investment needs.

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