Constant payout ratio, Finance Basics

Constant payout ratio

1. This is whereas the firm will pay a fixed dividend rate as like 40 percent of earnings. The DPS would consequently fluctuate as the earnings per share changes.

2. Dividends are straightly dependent on the firm's earnings capability and if no profits are made not dividend is paid.

3. This policy generates uncertainty to ordinary shareholders especially who such rely on dividend income and they might demand a higher necessary rate of return.

Posted Date: 1/31/2013 2:21:27 AM | Location : United States

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