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Shamrock Dogfood Company has consistantly paid out 40 percent of its earnings in dividends The company's return on equity is 16 percent What would you estimate as its dividend growth rate?
Wiki User
∙ 11y ago
We know that,
g = br
Here,
g = growth rate
b = retention ratio = (1- dividend pay-out ratio) = (1 - .40) = .60
r = return on equity = .16
So,
g = .60 x .16
= .096 or 9.6% (ans)
Wiki User
∙ 11y ago
Anonymous
11
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Because dividend cover represents the amount of times by which dividends can be paid by profits. i.e. the company's ability to pay it's dividends. The higher the dividend cover the greater the ability of the company to pay dividends out of it's distributable profits. Dividends according to companies act legislation can only be paid out of distributable profits hence the relevance of dividend cover represents the companies ability to pay their dividends.
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Why do companies not pay dividends
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The difference between a passive and an active dividend policy lies in the amount of time between dividend disbursement. In a passive dividend policy, dividends are given when the company decides it is time. With an active dividend policy, dividends are disbursed at regular intervals.
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