A stable dividend policy generally leads to a lower required rate of return on the part of the investor when compared to similar stocks with erratic fluctuations in dividends.

Question

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A stable dividend policy is seen as a signal of the company's financial stability and consistent performance, which reduces the perceived risk of investing in the stock. As a result, investors may require a lower return on their investment, leading to a higher demand for the stock and a higher price. On the other hand, stocks with erratic fluctuations in dividends are seen as riskier, which may cause investors to demand a higher rate of return, leading to a lower price.

A Stable Dividend Policy Generally Leads to a Lower Required