Dividend Policy: Factors, Types, and Impact on Shareholders and Companies

Question 1

Which type of dividend policy aims to maintain a stable dividend per share over time, regardless of company performance?

Accepted Answer

Constant dividend payout policy

Answer

Constant dividend growth rate policy

Answer

Residual dividend policy

Answer

Stable dividend plus growth policy

Question 2

Which of the following is a potential advantage of a stable dividend policy for shareholders?

Accepted Answer

Increased stock value

Answer

Reduced shareholder confidence

Answer

Easier access to external financing for the company

Answer

Flexibility in dividend payments for the company

Question 3

Which type of company would be most likely to adopt a residual dividend policy?

Accepted Answer

High-growth company with limited cash flow

Answer

Mature company with stable earnings

Answer

Company facing a significant debt obligation

Answer

Company with a large surplus of retained earnings

Question 4

Which of the following is a potential drawback of a high dividend payout ratio for a company?

Accepted Answer

Reduced retained earnings

Answer

Increased earnings per share

Answer

Improved stock liquidity

Answer

Higher dividend yield

Question 5

Which of the following is an advantage of using the constant dividend growth rate policy?

Accepted Answer

Predictability for shareholders

Answer

Higher dividend yield compared to other policies

Answer

Flexibility in dividend payments

Answer

Improved stock value in the short term

Question 6

Which of the following is a disadvantage of a zero dividend policy?

Accepted Answer

Reduced investor confidence

Answer

Improved earnings per share

Answer

Lower cost of equity for the company

Answer

Increased company flexibility

Question 7

How can a high dividend payout ratio potentially limit a company's ability to fund internal growth and expansion?

Accepted Answer

Reduces retained earnings available for investment

Answer

Increases debt levels

Answer

Dilutes shareholder value

Answer

Reduces the company's credit rating

Question 8

A company with consistent earnings and limited growth prospects is likely to adopt which dividend policy?

Accepted Answer

Constant dividend payout ratio

Answer

Zero dividend payout

Answer

Variable dividend payout

Answer

Residual dividend payout

Question 9

Which of the following is a potential drawback of a low dividend payout ratio?

Accepted Answer

May indicate poor financial performance or limited growth prospects

Answer

Encourages stock appreciation

Answer

Appeals to growth-oriented investors

Question 10

The Gordon Growth Model assumes that the dividend growth rate is:

Accepted Answer

Constant

Answer

Unpredictable

Answer

Variable

Answer

Zero

Question 11

Which of the following is a recognized method for valuing dividends?

Accepted Answer

Dividend discount model

Answer

Payout ratio

Answer

Earnings per share

Answer

Net asset value

Question 12

A company with a high ratio of debt to equity is more likely to have a:

Accepted Answer

Lower dividend payout ratio

Answer

Higher dividend payout ratio

Answer

Variable dividend payout ratio

Answer

Residual dividend payout ratio

Question 13

A dividend policy that aims to maintain a consistent payout ratio over time is known as a:

Accepted Answer

Constant payout ratio policy

Answer

Residual dividend policy

Answer

Target payout ratio policy

Answer

Zero dividend payout policy

Question 14

Which of the following is a potential advantage of a high dividend payout ratio for shareholders?

Accepted Answer

Increased dividend income

Answer

Reduced investment opportunities

Answer

Lower stock price

Answer

Increased financial risk

Question 15

What is the primary reason why a company might adopt a zero dividend payout policy?

Accepted Answer

To retain and reinvest earnings for growth

Answer

To reduce shareholder expectations

Answer

To avoid double taxation

Answer

To attract risk-averse investors

Question 16

Which of the following is a potential benefit of stock dividends for shareholders?

Accepted Answer

Capital gains opportunities

Answer

Increased cash flow for the company

Answer

Lower share price

Answer

Reduced dividends paid in the future

Question 17

The dividend cover ratio measures the extent to which a company's earnings:

Accepted Answer

Cover dividend payments

Answer

Cover debt

Answer

Cover assets

Answer

Exceed expenses

Question 18

What is a potential disadvantage of a residual dividend policy?

Accepted Answer

Fluctuating dividend payments

Answer

Consistently high dividend payout ratios

Answer

Limited investment opportunities

Question 19

What is the primary goal of a company's dividend policy?

Accepted Answer

Maximize shareholder value

Answer

Increase share price

Answer

Minimize risk

Answer

Minimize dividend payments

Question 20

A company's dividend payout ratio is calculated as:

Accepted Answer

Dividends per share / Earnings per share

Answer

Earnings per share / Dividends per share

Answer

Dividends per share / Total assets

Answer

Total assets / Dividends per share

Question 21

Which type of dividend policy aims to maintain a stable dividend per share over time, regardless of fluctuations in earnings?

Accepted Answer

Constant dividend policy

Answer

Zero dividend policy

Answer

Residual dividend policy

Answer

Variable dividend policy

Question 22

Which of the following is an advantage of a low dividend payout ratio?

Accepted Answer

Increased financial flexibility for the company

Answer

Increased risk of dividend cuts

Answer

Lower share price

Answer

Reduced shareholder returns

Question 23

Which of the following is a potential consequence of a high dividend payout ratio?

Accepted Answer

Reduced retained earnings for investment

Answer

Improved stock liquidity

Answer

Higher credit ratings

Answer

Increased shareholder satisfaction

Question 24

In a residual dividend policy, dividends are paid out after:

Accepted Answer

Meeting investment needs and debt obligations

Answer

Setting aside reserves for contingencies

Answer

Paying preferred shareholders

Question 25

Which of the following is a potential disadvantage of a variable dividend policy?

Accepted Answer

Uncertainty for shareholders

Answer

Flexibility for the company

Answer

Increased investor confidence

Answer

Reduced cost of equity

Question 26

**Which dividend policy is most appropriate for a company with a consistent cash flow and moderate growth prospects?**

Accepted Answer

Moderate-payout policy

Answer

High-payout policy

Answer

Low-payout policy

Answer

Variable-payout policy

Question 27

**Which of the following is a primary advantage of issuing stock dividends?**

Accepted Answer

It preserves cash while providing shareholders with a return.

Answer

It improves the company's credit rating.

Answer

It increases the company's total market capitalization.

Answer

It reduces the company's cost of equity.

Question 28

**The dividend payout ratio is a measure of:**

Accepted Answer

The percentage of earnings distributed to shareholders as dividends.

Answer

The number of shares issued by the company.

Answer

The company's profit margin.

Answer

The total amount of dividends paid per share.

Question 29

**A company that adopts a stable dividend policy is more likely to:**

Accepted Answer

Maintain a consistent relationship with its shareholders.

Answer

Experience rapid growth in share price.

Answer

Reduce its cost of capital.

Answer

Increase its debt-to-equity ratio.

Question 30

**Which of the following industry characteristics may justify a high dividend payout ratio?**

Accepted Answer

Mature industry with limited growth opportunities.

Answer

High demand for external financing.

Answer

Strong competition and low profit margins.

Answer

Rapid technological innovation.

Question 31

**A company that issues a scrip dividend:**

Accepted Answer

Offers shareholders the choice of receiving cash or additional shares.

Answer

Is prohibited by most regulatory bodies.

Answer

Distributes dividends solely in the form of shares.

Answer

Requires shareholders to purchase additional shares.

Question 32

**The Miller and Modigliani Dividend Irrelevance Theory suggests that:**

Accepted Answer

Dividend policy has no effect on a company's value.

Answer

Investors prefer companies with high dividend payout ratios.

Answer

Dividend policy can be used to signal the company's financial health.

Answer

Dividend policy should be based on the company's growth prospects.

Question 33

A company prioritizes steady dividend payments even when its earnings fluctuate. This approach aligns with which dividend policy?

Accepted Answer

Stable dividend policy

Answer

Variable dividend policy

Answer

Zero-dividend policy

Answer

Residual dividend policy

Question 34

Which of the following is an advantage of a high dividend payout ratio?

Accepted Answer

Attracting investors seeking regular income

Answer

Increasing the company's debt-to-equity ratio

Answer

Reducing the company's borrowing costs

Answer

Signaling confidence in future growth prospects

Question 35

A company distributes all its earnings as dividends. This practice is known as a dividend payout ratio of:

Accepted Answer

100%

Answer

25%

Answer

0%

Answer

50%

Question 36

Which of the following is generally NOT a reason for adopting a high dividend payout ratio?

Accepted Answer

Rapidly expanding business

Answer

Stable cash flows

Answer

Mature industry

Answer

Desire to attract conservative investors

Question 37

A company's board decides to reduce its dividend payout ratio. A likely reason could be:

Accepted Answer

To retain more earnings for internal investment

Answer

To signal a decline in the company's performance

Answer

To increase shareholder dissatisfaction

Answer

To avoid dividend cuts in the future

Question 38

Which of the following is a potential drawback of a low dividend payout ratio?

Accepted Answer

Dissatisfaction among investors seeking regular income

Answer

Enhanced financial flexibility

Answer

Reduced risk of takeover attempts

Answer

Improved access to external financing

Question 39

A dividend policy that restricts the company's ability to pay dividends is considered to be:

Accepted Answer

Restrictive dividend policy

Answer

Statutory dividend policy

Answer

Discretionary dividend policy

Answer

Flexible dividend policy

Question 40

A dividend policy that aims to maintain consistent dividends per share, irrespective of the company's earnings, is known as a:

Accepted Answer

Constant dividend payout policy

Answer

Residual dividend payout policy

Answer

Growth dividend payout policy

Answer

Variable dividend payout policy

Question 41

Which of the following factors does NOT influence dividend decisions?

Accepted Answer

Cost of raw materials

Answer

Tax implications

Answer

Availability of investment opportunities

Answer

Dividend policy of similar companies

Question 42

A company with significant growth potential is likely to adopt a dividend policy that:

Accepted Answer

Retains a majority of earnings for reinvestment.

Answer

Maintains a fixed dividend payout ratio

Answer

Distributes a large portion of earnings as dividends

Answer

Increases dividends rapidly

Question 43

A dividend payment made from sources other than current or retained earnings is referred to as a:

Accepted Answer

Liquidating dividend

Answer

Property dividend

Answer

Scrip dividend

Question 44

Which of the following is a potential drawback of paying out high dividends?

Accepted Answer

Limited funds available for growth and investment

Answer

Improved company credit rating

Answer

Increased shareholder satisfaction

Answer

Enhanced investor confidence

Question 45

The proportion of a company's earnings per share that is distributed as dividends is known as the:

Accepted Answer

Dividend payout ratio

Answer

Dividend yield

Answer

Earnings yield

Answer

Dividend cover

Question 46

A company committed to a stable dividend payout ratio will typically adjust its dividend payments based on:

Accepted Answer

Changes in earnings

Answer

Changes in stock price

Answer

Changes in interest rates

Question 47

The final decision on whether or not to pay dividends is made by the:

Accepted Answer

Board of directors

Answer

Chief financial officer

Answer

Executive management team

Answer

Shareholders

Question 48

Which of the following factors significantly influences a company's decision about paying dividends?

Accepted Answer

Shareholder expectations

Answer

Economic conditions

Answer

Company size

Answer

Government regulations

Question 49

What type of dividend policy involves paying a consistent amount of dividend to shareholders every period, regardless of the company's earnings?

Accepted Answer

Stable dividend policy

Answer

Residual dividend policy

Answer

Dividend growth policy

Answer

Payout ratio policy

Question 50

What is the main benefit of a stable dividend policy for a company?

Accepted Answer

Attracting investors who prefer predictable income streams

Answer

Maximizing dividend payout

Answer

Reducing the cost of capital

Answer

Minimizing shareholder expectations

Question 51

What is a key drawback of a residual dividend policy?

Accepted Answer

Dividends can fluctuate significantly depending on the company's profitability

Answer

Low dividend payout

Answer

High cost of capital

Question 52

How do you calculate a company's payout ratio?

Accepted Answer

Divide the total dividends paid by the company's net earnings

Answer

Divide equity by assets

Answer

Divide retained earnings by total liabilities

Question 53

Which of these is a common method used by companies to smooth out fluctuations in dividend payments?

Accepted Answer

Creating a dividend stabilization fund

Answer

Stock split

Answer

Stock buyback

Answer

Rights issue

Question 54

What impact does a high payout ratio have on a company's retained earnings?

Accepted Answer

It reduces the amount of retained earnings available for investment

Answer

It has no impact on retained earnings

Answer

It leads to negative retained earnings

Answer

It increases retained earnings

Question 55

What is the fundamental difference between a stock dividend and a cash dividend?

Accepted Answer

A stock dividend provides additional shares of the company's stock instead of cash

Answer

A cash dividend is more valuable than a stock dividend

Answer

A stock dividend is taxable, while a cash dividend is not