Which of the following factors would most likely be present if a company increases its dividend payout ratio significantly?
A) A high debt/equity ratio (i.e., use of a large amount of financial leverage)
B) A quick ratio that is significantly below the industry average
C) Current shareholders cannot participate in a new offering and desire to maintain ownership control.
D) The variability of expected future earnings decreases.

Question

Quizplus · Accepted Answer

Increasing the dividend payout ratio can be a signal that a company is more confident in its expected future earnings, and that the variability of those earnings is decreasing. This is because if a company is more certain about its ability to generate consistent cash flows, it may choose to increase its dividend payments to shareholders. A high debt/equity ratio, a low quick ratio, or shareholder desires for ownership control would not necessarily be directly related to an increase in dividend payout ratio.

Which of the Following Factors Would Most Likely Be Present