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CS Executive · Corporate Accounting and Financial Management · Dividend Decisions

Tarini Industries pays out a fixed 40% of its profit after tax every year as dividend, so the rupee dividend per share rises and falls with earnings. Which type of dividend policy is this?

This is a constant payout ratio policy. The firm distributes a fixed percentage of profit after tax each year, so the dividend per share fluctuates with earnings. A stable dividend per share policy, by contrast, keeps the rupee amount steady irrespective of profit changes.

  1. AStable dividend per share policy
  2. BConstant payout ratio policyCorrect
  3. CResidual dividend policy
  4. DNo-dividend policy

Explanation

A constant payout ratio policy fixes the percentage of earnings distributed, so dividend moves in line with profit. A stable dividend per share policy would keep the rupee amount steady regardless of earnings, so it does not fit.

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