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Dividend Policy

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Dividend Policy. For each of the following four groups of companies, state whether it would be expected to distribute a relatively high or low proportion of current earnings and whether it would be expected to have a relatively high or low price earnings ratio.

a. High Risk Companies
b. Companies that have recently experienced a temporary decline in profits
c. Companies that expect to experience a decline in profits
d. "Growth" companies with valuable future investment opportunities

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The solution explains the dividend policy of different types of companies

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a. High Risk Companies

High risk companies are those which have a high variability in earnings. Such firms would distribute low proportion of earnings since they would not know how the earnings will be in future and would not like to change the dividends frequently. These firms ...

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