Which statement about dividend policies is correct?
A)Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the bird-in-the hand effect.
B)One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.
C)The key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.
D)The clientele effect suggests that companies should follow a stable dividend policy.

Question

Quizplus · Accepted Answer

The clientele effect suggests that companies attract a certain type of investor based on their dividend policy, and thus, it supports the idea that companies should maintain a stable dividend policy to keep their investor base satisfied.

Which Statement About Dividend Policies Is Correct