All else the same, an increase in a ﬁrm's dividend payout ratio will decrease its internal growth rate.

Question

Quizplus · Accepted Answer

An increase in dividend payout ratio means that the firm is paying out more of its earnings to shareholders as dividends, which leaves less money for reinvestment in the business. This will decrease the firm's internal growth rate, which is the maximum rate at which it can grow without external financing.

All Else the Same, an Increase in a ﬁRm's Dividend