The dividend policy that states smoothing of the dividend stream in order to minimize the effect of company reversals is called the [blank].
A)increasing-stream hypothesis of dividend policy
B)stable dividend policy
C)clientele effect policy
D)residual payout policy

Question

Quizplus · Accepted Answer

The dividend policy that smoothes the dividend stream to minimize the effect of company reversals is called the stable dividend policy. This policy aims to maintain a consistent and predictable dividend payout to shareholders, even if the company's earnings fluctuate. By doing so, the company can avoid negative reactions from shareholders and maintain investor confidence. Option A, increasing-stream hypothesis of dividend policy, suggests that companies will slowly increase their dividend payouts over time. Option C, clientele effect policy, refers to the idea that companies should cater to the preferences of their shareholders when determining their dividend policy. Option D, residual payout policy, refers to the practice of paying out dividends only after a company has made all necessary investments and retained earnings for future growth.

The Dividend Policy That States Smoothing of the Dividend Stream