Practicing Success
Higher dividend per share is possible for a company to provide in which of the following situation. |
High earnings, Low cash flows and Lower growth opportunities High earnings, High cash flows and High growth opportunities High earnings, High cash flows and Lower growth opportunities High earnings, Low cash flows and High growth opportunities |
High earnings, High cash flows and Lower growth opportunities |
The correct answer is option (3) : High earnings, High cash flows and Lower growth opportunities Higher dividend per share is more likely for a company in the following situation: 3. High earnings, High cash flows, and Lower growth opportunities In this scenario, the company has high earnings and high cash flows, which provide the financial stability to distribute higher dividends. However, the lower growth opportunities suggest that the company may not need to reinvest a significant portion of its earnings into expansion, making more funds available for distribution to shareholders in the form of dividends. This is often seen in mature or well-established companies that generate substantial profits but have limited opportunities for significant growth. Certainly, here are explanations for the other situations: 2. High earnings, High cash flows, and High growth opportunities: While high earnings and high cash flows are positive indicators, having high growth opportunities often requires significant reinvestment in the business to fund expansion and development. Companies in such situations tend to retain a larger portion of earnings to fuel growth and innovation, resulting in lower dividend payouts. 4. High earnings, Low cash flows, and High growth opportunities: This situation is similar to option 2, where high growth opportunities usually lead to significant reinvestment in the business, However, low cash flows can be a constraint on the ability to pay higher dividends, as cash is needed to cover operational expenses and investments in growth. So, in summary, the key to providing higher dividends per share often lies in having high earnings, strong cash flows, and a lower need for reinvestment due to limited growth opportunities. This allows the company to distribute more of its profits to shareholders in the form of dividends. |