According to the residual theory of dividends,
A) dividends are a residual after investment financing needs have been met.
B) earnings remaining after payment of preferred stock dividends should be paid to common stockholders.
C) dividend payments are a constant percentage of earnings per share.
D) a dividend is the residual above the payout ratio.

Question

Quizplus · Accepted Answer

The residual theory of dividends suggests that the dividends paid to shareholders are the residual after all investment financing needs and expenses have been met. In other words, once a company has paid for all of its necessary investments, it can use any excess earnings to pay dividends to shareholders.

According to the Residual Theory of Dividends