A high-dividend policy is more difficult for a weak firm than for a strong firm because a weak firm likely will not have the cash to support it.

Question

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A high-dividend policy requires a firm to pay out a large portion of its profits as dividends. If a firm is weak, it is likely to have limited cash flows and may not have the financial resources to support a high-dividend policy. Therefore, it is more difficult for a weak firm to have a high-dividend policy compared to a strong firm.

A High-Dividend Policy Is More Difficult for a Weak Firm