Which of the following statements about shareholders' preference as a factor affecting the dividend decision is NOT correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Shareholders’ preference refers to the policy of stabilising the dividend per share from year to year.
Option (1) Shareholders’ preference means that, while declaring dividends, the management keeps in mind what the shareholders want. — True. Under this factor the management keeps the wishes of the shareholders in mind when it decides the dividend.
Option (2) If the shareholders in general desire that at least a certain amount is paid as dividend, the company is likely to declare the same. — True. When shareholders as a group want a minimum dividend, the company usually pays it.
Option (3) Shareholders’ preference refers to the policy of stabilising the dividend per share from year to year. — False. Keeping the dividend per share steady is a different factor, stability of dividends. Under it, a company raises the dividend only when it is confident that its earning power has gone up for good.
Option (4) Some shareholders depend upon a regular income from their investments, so they want a regular dividend. — True. Some shareholders live on a regular income from their investments, so they prefer a regular dividend.
NCERT (2026-27 Edition): “(c) Stability of Dividends: Companies generally follow a policy of stabilising dividend per share. The increase in dividends is generally made when there is confidence that their earning potential has gone up and not just the earnings of the current year. In other words, dividend per share is not altered if the change in earnings is small or seen to be temporary in nature.” “(f) Shareholders’ Preference: While declaring dividends, managements must keep in mind the preferences of the shareholders in this regard. If the shareholders in general desire that at least a certain amount is paid as dividend, the companies are likely to declare the same. There are always some shareholders who depend upon a regular income from their investments.” |