A pure residual dividend policy requires:
A)that dividends be paid on a constant year-to-year basis.
B)dividends to be paid only if profits are in excess of investment needs.
C)extra finance to be raised externally to meet dividend needs.
D)franked dividends to be paid if a positive balance exists in the franking account.

Question

Quizplus · Accepted Answer

A pure residual dividend policy means that dividends are paid only if the profits are in excess of the company's investment needs. In other words, dividends are paid as a residual to any leftover earnings after the company has met its internal investment needs. This policy ensures that the company is reinvesting enough in the business to meet growth goals while also providing shareholders with returns. Therefore, option B is the correct answer. Option A is incorrect because a constant year-to-year dividend is not necessarily a part of the residual dividend policy. Option C is incorrect because a pure residual dividend policy doesn't require external financing. Option D is incorrect because franking credits are related to taxes, and it's not a part of the residual dividend policy.

A Pure Residual Dividend Policy Requires