Sinkmaster Corp.settled a large lawsuit that caused earnings to be negative for the quarter.This quarterly loss was the first in 22 years.In addition,the company has a record of 48 consecutive quarters of dividend payments.Which of the following is correct?

Question

Quizplus · Accepted Answer

The company can use cash generated through prior retention of earnings or borrow funds to pay the dividend, despite the negative earnings for the quarter. The company's record of 48 consecutive quarters of dividend payments suggests that they prioritize maintaining their dividend policy, and they have options to fund the dividend payment even if current earnings are negative. Option A is incorrect because the company can still pay dividends even if there were no earnings for the current quarter. Option C is also incorrect because shareholders generally expect dividend payments to continue unless there are significant financial difficulties. Option D is also incorrect because dividend policy can have an impact on investor preferences and therefore may not be immaterial.