In 2014, W Co had a dividend yield ratio of 0.3% and J.C. Co. reported a yield of 6.9%. What is the most likely reason for W Co's relatively low dividend yield in comparison to J.C. Co's ratio?
A) W Co does not have sufficient retained earnings to support declaring a dividend.
B) W Co does not generate sufficient operating profit to support declaring a dividend.
C) W Co does not generate sufficient cash from operations to be able to pay a dividend.
D) W Co is paying little in dividends because it continues to grow through expansion of store locations financed by operations.

Question

Quizplus · Accepted Answer

The fact that W Co has a low dividend yield ratio suggests that the company is likely choosing to reinvest its earnings back into the business rather than paying out a dividend. Option B suggests that W Co is not generating sufficient operating profit to support declaring a dividend, but this cannot be determined from the given information. Option A and C are also not supported by the information given. Therefore, the best answer is D, as it offers a plausible explanation for why W Co's dividend yield ratio is lower than J.C. Co's.

In 2014, W Co Had a Dividend Yield Ratio of 0.3