Homework Answers
Regular dividend would have a clientele effect. It would satisfy those investors who need regular income plus a fair capital appreciation, that, may result form plowing back of profits available after dividends.
This in contrast to a residual dividend policy, which, advocates payouts only after the equity contribution for capital projects is set apart from earnings. Such a policy will give rise to varying dividend payouts, with resultant movements in share prices.
But, plowing back of profits would require availability of acceptable capital expenditure projects. If not, the profits are better distributed to the shareholders. But, this can be done as an extra dividend in the years for which suitable capital expenditure projects are not available.
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