The advantage of using the low-regular-and-extra dividend policy is that
A) the firm avoids giving the shareholders false hopes.
B) the extra dividend may become a regular event.
C) if the firm's earnings drop, so does the dividend payment.
D) cyclical shifts in earnings may be avoided.

Question

Quizplus · Accepted Answer

The low-regular-and-extra dividend policy involves paying a lower regular dividend and occasional extra dividends based on the firm's earnings. This allows the firm to avoid giving shareholders false hopes by consistently paying a high dividend that may not be sustainable in the long term. Additionally, this policy allows for more flexibility in dividend payments, as the extra dividend may become a regular event or the regular dividend may be decreased if the firm's earnings drop. Finally, this policy may help avoid cyclical shifts in earnings by allowing the firm to adjust dividend payments accordingly. However, of the options given, A is the most clearly and directly supported by the information provided.

The Advantage of Using the Low-Regular-And-Extra Dividend Policy Is That