Which of the following is a reason for a high dividend payout policy?

What factors favor a high dividend payout?

In general, individual investors who are in a low tax bracket and need the cash will favor high dividend payouts. Due to tax breaks, institutional investors (such as corporations and tax-exempt organizations) also usually prefer high dividends.

What does a high dividend payout ratio mean?

The dividend payout ratio helps investors determine which companies align best with their investment goals. … A high DPR means that the company is reinvesting less money back into its business, while paying out relatively more of its earnings in the form of dividends.

What is dividend payout policy?

A dividend policy is the policy a company uses to structure its dividend payout to shareholders. Some researchers suggest the dividend policy is irrelevant, in theory, because investors can sell a portion of their shares or portfolio if they need funds.

What are some of the reasons for a low dividend payout?

Lower Profits

One reason for a lower dividend payment is that the company did not earn as much in profits as in previous years. Dividends to shareholders are paid out of net profits, so the board may have its hands tied after a year when the net income was down compared to previous years.

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Which of the following investors might prefer a high dividend payout?

Answer: Pension fund shareholders tend to prefer high dividend payouts. A firm is debating between a stock repurchase and a cash dividend.

What determines dividend payout?

The dividend payout amount is typically determined through forecasting long-term earnings and calculating a percentage of earnings to be paid out. Under the stable policy, companies may create a target payout ratio, which is a percentage of earnings that is to be paid to shareholders in the long-term.

Do you want a high or low payout ratio?

Generally, the higher the payout ratio, especially if it is over 100%, the more its sustainability is in question. Conversely, a low payout ratio can signal that a company is reinvesting the bulk of its earnings into expanding operations.

What is dividend policy and factors affecting dividend policy?

The financial matters like trend of profit, existence of earned surplus, cash position, reaction of shareholders, economic policy of the nation, need for expansion, and nature of the enterprise trade cycle, age of the company, government taxation policy are determinants of dividend policy.

Why dividend policy is important for a company explain?


It sets the parameter for delivering returns to the equity shareholders, on the capital invested by them in the business. While taking such decisions, the company has to maintain a proper balance between its debt and equity composition.

Why dividend policy is important to a company?

Establishing a dividend policy is one of the most important things you can do when it comes to your company’s finances. It communicates your company’s financial strength and value, creates goodwill among shareholders, and drives demand for stocks.

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