Question

Companies with a higher growth potential are likely to

Options

• pay lower dividends

• pay higher dividends

• dividends are not affected

• none of the above

Answer 1

pay lower dividends

Explanation -

Companies with a larger potential for growth are more likely to pay lower dividends. This is because companies with more growth potential have more ambitious investment plans and require more capital. As a result, they keep a larger amount of their earnings to fund the required investment, resulting in fewer dividends.