Stable dividend policy

6 posts / 0 new
Last post
codanalyst's picture

If a question asks you to identify or describe a stable dividend policy, what do you think it should be ?
1) A constant dollar amount of dividend 
2) An amount that increases regularly at a normal (average inflation maybe) level
Schewser seems to think that it is the second and I think thats correct. Just saw this on CFAI PM mock. So wanted to confirm

1
Having Trouble With The Treynor-Black Model?
Check out our lecture video and study guide reading on Active Portfolio Management for FREE.
Access Now
Dreary's picture

2 sounds better.

crackthecfa's picture

I was reviewing schweser notes- it said though earnings maybe volatile- div payments for consistently similar. So I would think it has to be 1.

option 2 would be a constant div payout ratio

Dreary's picture

Option 2 is not a constant div payment, that would be if you say div is 5% of NI.  Here it is rising with inflation which makes some sense.

crackthecfa's picture

yeah….so option 2 would be like if earnings $100 and DPR 10%. div =$10 and earnings $350 then div =$35. So it fluctuates based on earnings.

codanalyst's picture

Thanks for the confo guys

Subscribe toComments for "Stable dividend policy"