Which of the following statements about dividend policies is CORRECT?
A) Miller and Modigliani argued that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the "bird-in-the-hand" effect.
B) One reason that companies tend to favor distributing excess cash as dividends rather than by repurchasing stock is that dividends are normally taxed at a lower rate than gains on repurchased stock.
C) One advantage of dividend reinvestment plans is that they allow shareholders to delay paying taxes on the dividends that they choose to reinvest.
D) One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
E) The clientele effect suggests that companies should follow a stable dividend policy.

Question

Quizplus · Accepted Answer

The clientele effect suggests that companies should follow a stable dividend policy because different groups of investors, or clienteles, prefer different dividend policies. Companies that maintain a stable dividend policy can attract and retain investors who prefer that level of dividend stability.

Which of the Following Statements About Dividend Policies Is CORRECT