Fin test 3 sec #1
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what are dividends?
they're distribution from the firm's assets to the shareholders
firms aren't obligated to
pay dividends or maintain a consistent policy with regard to dividends
dividends could be paid in
cash or stocks
a firms dividend policy includes two components:
dividend payout ratio and stability of dividends over time
dividend payout ratio
indicates amount of dividend paid relative to the company's earnings (i.e. dividends per share is $1 and earnings per share is $2,ratio is 50% (1/2)
decision to pay a large dividend means:
retaining less of the firm's profits and firm relies more on external equity financing
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