The problem with a constant-pay-out-ratio dividend policy from the shareholder's perspective is that
A) even when earnings are low, the company must pay a fixed dividend.
B) there is no informational content.
C) it bores the shareholders.
D) if the firm's earnings drop, so does the dividend payment.

Question

Quizplus · Accepted Answer

A constant-pay-out-ratio dividend policy means dividends are a fixed percentage of earnings. If earnings drop, dividends will also decrease, which may be unfavorable for shareholders relying on dividend income.

The Problem with a Constant-Pay-Out-Ratio Dividend Policy from the Shareholder's