CS Executive · Corporate Accounting and Financial Management · Dividend Decisions
Under a stable dividend policy where the firm pays a regular Rs 5 per share and additionally declares a small extra dividend only in exceptionally good years, which feature is being used?
The feature is a regular dividend plus an extra dividend. The firm commits to a steady minimum payment and declares an additional amount only when profits are exceptionally high, preserving investor confidence without binding itself to higher payouts in future years.
- AStock split
- BRegular dividend plus extra dividendCorrect
- CConstant payout ratio
- DBonus issue of shares
Explanation
Paying a steady minimum amount with an occasional extra payment in high-profit years is the low regular dividend plus extra dividend approach. A constant payout ratio would vary the dividend with profit every year, while a bonus issue or split is not a cash dividend.
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