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Reading 31: Dividends and Share Repurchases: Analysis-LOS j 习

Session 8: Corporate Finance
Reading 31: Dividends and Share Repurchases: Analysis

LOS j: Discuss the symptoms of companies that may not be able to sustain their cash dividend.

 

 

Which of the following is most likely to be a symptom of a company that is able to sustain its cash dividend?

A)
Issuing new debt to fund projects and cover capital expenditures.
B)
A high dividend payout ratio compared to the industry average.
C)
A low dividend yield compared to the company's historic average.


 

High dividend yields compared to the company’s record suggest that investors are expecting dividends to be cut. Net borrowings are not sustainable, and will eventually require a cut in share repurchases and dividends. A higher-than-average dividend payout ratio creates the risk that dividends may be cut if earnings decline.

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