A company that wants to maintain both a constant growth rate in dividends and a constant payout ratio will have to
A) grow earnings faster than dividends.
B) increase assets at the same rate as dividends.
C) grow earnings at the same rate as dividends.
D) increase stockholders' equity at the same rate as dividends.

Question

Quizplus · Accepted Answer

For a company to maintain both a constant growth rate in dividends and a constant payout ratio, it must grow its earnings at the same rate as dividends. This is because the payout ratio is the fraction of earnings paid out as dividends, so if both the payout ratio and the dividend growth rate are constant, earnings must grow at the same rate as dividends to sustain this balance.

A Company That Wants to Maintain Both a Constant Growth