In the real world, dividends ________.
Click on the arrows to vote for the correct answer
A. B. C. D. E.E
Most firms and stockholders expect earnings to grow over time with dividends growing virtually the same as earnings. In the past, a "stable dividend policy" meant a company paid the same dollar dividend for several years in a row, but today it means increasing the dividend at a reasonably steady rate. From an investor's viewpoint, the most stable policy is that whose dividend growth rate is predictable. The second most stable policy is where stockholders can reasonably be sure that the current dividend will not be reduced. The least stable is where earnings and cash flows are so volatile that investors cannot count on the company to maintain the current dividend. Since profits and cash flow vary over time for a firm, one would suggest that firms should vary their dividends over time, increasing them when cash flows are large and lowering them when cash is low relative to investment opportunities. However, many stockholders rely on dividends and reducing dividends may send incorrect signals, which could drive the stock price. Thus, maximizing a firm's stock price requires a balance of its internal fund requirements against the desires of the stockholders