A ﬁrm that follows a strict residual dividend policy is likely to maintain a stable pattern of dividends
over time.

Question

Quizplus · Accepted Answer

A strict residual dividend policy means that dividends are paid only after all the necessary investments have been made. This means that dividends can vary greatly from year to year depending on the level of investment required. Therefore, a firm following a strict residual dividend policy is not likely to maintain a stable pattern of dividends over time.

A ﬁRm That Follows a Strict Residual Dividend Policy Is