Question
Asked Nov 1, 2019
3 views

Topic: Payout Policy

What is the advantage(s) of dividends against retained earnings?

check_circle

Expert Answer

Step 1

Dividend is the share which is given to the shareholders when from the company's profit. Dividend can only be given when the company earns profit. It is not a fixed interest which is paid to the debenture holders. Dividend can be of two types (i) equity shares dividend: The amount of profit distributed among equity shareholders after distributing the preference dividend is known as equity shares dividend. (ii) Preference shares dividend: The amount paid to the preference shareholders from the company's profit which is available for dividend distribution.

Step 2

Retained earnings is the net income that a firm has left with after paying the dividend.

Step 3

It is advantageous to pay stable dividend against retained earnings because of following reasons:

By paying dividend to their shareholders, the company sent their shareholders a message that the company is growing and earning profit.

It also tells them about the company’s financial st...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Corporate Finance

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Q3. Company ABC just sold their most profitable division for $100 million in cash. The company has a...

A: Hi, since there are multiple questions posted, we will answer the first question alone. Kindly repos...

question_answer

Q: 01 O63 9a How much money should be deposited today in an account that earns 5% compounded semiannual...

A: We need to use the concept of time value of money to solve the question. According to the concept of...

question_answer

Q: Explain how financial institutions serve the needs of consumers, small businesses, and corporations....

A: Role of financial institutions (FIs):FIs play a crucial role in economy. They make financial transac...

question_answer

Q: NPV and IRR Analysis Cummings Products Company is considering two mutually exclusive investments who...

A: 1.The NPV profiles for Projects A and B are shown below:The correct graph is Graph B.Excel Spreadshe...

question_answer

Q: The Depository Trust and Clearing Corporation (DTCC)   primarily provides custody and asset servic...

A: DTCC (Depository Trust and Clearing Corporation) was created with the aim to increase capital effici...

question_answer

Q: How much should chuck invest semiannually in his ira to have $250,000 in it when he retires in 25 ye...

A: Semi-annual compound interest is the interest which is added to the principal amount twice in a year...

question_answer

Q: You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.)...

A: Please see the white board wwhere I have summarized the information given, in a tabular form. All fi...

question_answer

Q: This is cash flow available for payments to stockholders and debt holders of a firm after the firm h...

A: The correct option is (b) free cash flow as after meeting all the necessary investments required to ...

question_answer

Q: The XYZ Company paid $1.25 dividend yesterday. Its dividend growth rate is expected to be constant a...

A: Current price of stock will consist present value of all future dividend.The below expression will h...