The problem with a constant-payout-ratio dividend policy from the shareholders' perspective is that ________.
A) it pays constant dividend irrespective of the earnings of a firm
B) if the firm's earnings drop, the dividends tend to be lower
C) even when earnings are low, the company must pay a fixed dividend
D) there is no uniformity in this type of dividend policy

Question

Quizplus · Accepted Answer

A constant-payout-ratio dividend policy means that the company pays out a fixed percentage of its earnings as dividends. Therefore, if the firm's earnings decrease, the dividend payments will also decrease, which can be a problem from the shareholders' perspective who might prefer stable or predictable dividend payments.

The Problem with a Constant-Payout-Ratio Dividend Policy from the Shareholders