High Payout Ratios

Explanation

All but one of these answers is correct. Specifically, the dividend payout ratio is very closely related to the maturity of the industry, the level of competition in the industry, and the growth rate in earnings. Remember that all of these factors are interrelated. As an industry becomes more mature, competition becomes maximized, margins shrink, and the growth potential of the industry declines. This will lead to a decrease in positive NPV investment opportunities in the industry, forcing firms to increase the proportion of earnings paid out to shareholders in the form of dividends.

The level of regulation in an industry is not necessarily highly correlated with the dividend payout ratio of firms within the industry. For example, the financial services industry is very heavily regulated, yet firms within this sector do not pay a disproportionate amount of their earnings as dividends. However, he utility industry, also heavily regulated, pays a very high proportion of earnings as dividends.