Under which of the following circumstances a company is not likely to declare a higher dividend?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- When a company has a lucrative forthcoming business opportunity.
A company is not likely to declare a higher dividend when a company has a lucrative forthcoming business opportunity. In such cases, the company may prefer to reinvest its earnings into growth opportunities rather than distributing them to shareholders as dividends.
Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. The dividend in growth companies is, therefore, smaller, than that in the non– growth companies.