A firm that maintains stable cash dividends will generally not increase the dividend unless
A) a stock split occurs.
B) the firm merges with another profitable firm.
C) the firm is sure that a higher dividend level can be maintained.
D) the price-earnings (P/E) ratio increased steadily over the past five years.

Question

Quizplus · Accepted Answer

A firm that maintains stable cash dividends will generally only increase the dividend if it is confident that it can maintain the higher level in the future. This ensures that investors have a reliable source of income and that the firm can sustain its dividend policy over the long term. A stock split, a merger with another firm, or an increase in the P/E ratio may or may not lead to an increase in the dividend, depending on the firm's financial position and future prospects.

A Firm That Maintains Stable Cash Dividends Will Generally Not