Avoiding dividend cuts and maintaining target D/E ratio are the two underlying objectives in the residual dividend policy.

Dividend Cuts

A reduction in the dividend payments announced by a company, often due to financial difficulties or a need to retain more earnings for investments.

Target D/E Ratio

The desired debt-to-equity ratio that a company aims to achieve to optimize its capital structure.

Residual Dividend Policy

Residual Dividend Policy is a strategy where a company pays dividends out of the residual or leftover equity only after all project capital needs are met.