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What assertions about Divident Policy are true? What companies would you expect to distribute a relatively high or low proportion of current earnings?

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Dividend Policy. Here are several assertions about typical corporate dividend policies. Which of them are true? Write out a corrected version of any false statements.
a. Most companies set a target dividend payout ratio.
b. They set each year's dividend equal to the target payout ratio times that year's earnings.
c. Managers and investors seem more concerned with dividend changes than dividend levels.
d. Managers often increase dividends temporarily when earnings are unexpectedly high for a year or two.

Dividend Policy. For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them 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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Solution Summary

This problem answers various assertions about the dividend policy of the companies and explains them. The solution further discuss whether companies in a particular industry would have a high dividend payout ratio or a low dividend payout ratio. This solution is 294 words.

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Dividend Policy. Here are several assertions about typical corporate dividend policies. Which
of them are true? Write out a corrected version of any false statements.

a. Most companies set a target dividend payout ratio.
True

b. They set each year's dividend equal to the target payout ratio times that year's earnings.
False
Firms try to reach the target payout ratio gradually over a period of time because stockholders prefer a steady progression in ...

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