What is the solid difference between Stable Dividend and constant Dividend policy as they both work on a fixed payout ratio over the EPS?
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I don’t think there is something called the Constant dividend policy. I’m sure you’re trying to talk about Constant Dividend Payout Ratio Policy.
In the case of the Constant Dividend Payout Ratio Policy, the payout ratio is constant, say 60% of whatever the EPS may be. It makes dividends uncertain.
In the case of the Stable Dividend Policy, the dividend amount and not the payout ratio is constant ( or rather I’d say stable), say a fixed amount of $4/share. It makes dividends more certain.
Under the Stable dividend policy, the company makes a forecast about its sustainable earnings and the dividend’s growth is in line with its long term earnings, so that there is stability in the dividend paid. Whereas in the Constant dividend policy, the payout ratio is fixed irrespective of the earnings of the company.