Asked by Connell Maxwell on Jul 22, 2024
Verified
An increase in a firm's payout ratio increases current dividends received by a stockholder at the expense of lower future dividends.
Payout Ratio
The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage of the company's total net income.
Current Dividends
Dividends that are declared and paid to shareholders out of a company's current earnings or accumulated profits.
Future Dividends
Expected payments made by a corporation to its shareholder members based on future earnings, typically projected by the company’s management or analysts.
- Understand the restrictions and versatility in the practices of dividend payouts.
Verified Answer
AH
Angela Hunter BrockJul 26, 2024
Final Answer :
True
Explanation :
Increasing the payout ratio means that more of the firm's earnings are being distributed as dividends. This leads to higher current dividends received by stockholders, but it also means that the firm is retaining less earnings to fund future growth and pay future dividends. Therefore, lower future dividends can be expected.
Learning Objectives
- Understand the restrictions and versatility in the practices of dividend payouts.