Which of the following is true about the dividend policy of a company? Group of answer...

Which of the following is true about the dividend policy of a company?

Group of answer choices

The dividend policy of a company should affect the future value of a stock but not the current value

Companies with low excess return periods typically pay lower dividends

The higher the dividend paid, the higher the current value of the stock

If the dividend is expected to grow, it will reduce the expected future value of the stock because the company is not reinvesting in new projects

If interest rates increase, the dividend policy of a company will always become more conservative

Expert Solution

The true statement is:

The higher the dividend paid, the higher the current value of the stock.

The current value of the stock price is equal to the present value of future dividends. The higher the dividend paid, the higher the current value of the stock and vice versa.

The other answer options are incorrect:

The dividend policy of a company should affect the future value of a stock but not the current value. Incorrect because the dividend policy shold affect the current price of the stock.
Companies with low excess return periods typically pay lower dividends. Incorrect because the dividend policy is based on the free cash available to the company.
If the dividend is expected to grow, it will reduce the expected future value of the stock because the company is not reinvesting in new projects. Incorrect because Higher the growth in the dividend, higher will be the expected value of the stock.
If interest rates increase, the dividend policy of a company will always become more conservative. Not necessarily because the dividend policy is based on the free cash available to the company and the company may be debt free and interest rate doesn't affect at all.

jeff jeffy answered 1 year ago

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