Home › CA Inter › Financial Management › Dividend Determinants › An advantage of a high payout ratio is:
An advantage of a high payout ratio is:
AIt signals management confidence in stable earnings
BIt avoids all taxes
CIt eliminates retained earnings
DIt guarantees share price
Answer & Solution
Correct answer: A. It signals management confidence in stable earnings
1. High payout signals confidence: management commits to sustainable cash distributions.
2. Attracts income-oriented investors.
3. Trade-off: less capital for growth/reinvestment.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §4_