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

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 can attract and retain investors by maintaining a consistent dividend policy that aligns with the preferences of their target clientele.

Which of the Following Statements About Dividend Policies Is CORRECT