A firm that follows a strict residual dividend policy is likely to maintain a stable pattern of dividends over time.

Question

Quizplus · Accepted Answer

A strict residual dividend policy means dividends are paid out from the leftover or residual earnings after all operational and investment expenses are covered. This approach can lead to fluctuating dividends since it directly depends on the company's earnings and investment opportunities, which can vary significantly from year to year.

A Firm That Follows a Strict Residual Dividend Policy Is