A policy of dividend "smoothing" refers to:
A) maintaining a constant dividend payout ratio.
B) keeping the regular dividend at the same level indefinitely.
C) maintaining a steady progression of dividend increases over time.
D) alternating cash dividends with stock dividends.

Question

Quizplus · Accepted Answer

A policy of dividend smoothing involves maintaining a consistent and gradual increase in dividend payouts over time. This helps to provide investors with a sense of stability and confidence in the company's financial performance, while also avoiding sudden and sharp changes in dividend payouts that could signal instability or financial distress. Option A refers to a policy of maintaining a constant dividend payout ratio, whereas option B describes a policy of maintaining the regular dividend at the same level indefinitely, neither of which are examples of dividend smoothing. Option D describes a practice of alternating between cash and stock dividends, which is different from dividend smoothing.

A Policy of Dividend "Smoothing" Refers To