In the Real World, Dividends

question 8

Multiple Choice

In the real world, dividends

• A) are usually more stable than earnings.
• B) fluctuate more widely than earnings.
• C) tend to be a lower percentage of earnings for mature firms.
• D) are usually changed every year to reflect earnings changes, and these changes are randomly higher or lower, depending on whether earnings increased or decreased.
• E) are usually set as a fixed percentage of earnings, e.g., at 40% of earnings, so if EPS = $2.00, then DPS will equal $0.80. Once the percentage is set, then dividend policy is on "automatic pilot" and the actual dividend depends strictly on earnings.

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