Question

How do growth opportunities affect dividend decisions ?​

Answer 1

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Firms with strong growth prospects low target payout ratios. ... This interrelationship among the firm's growth, its profitability, and its investment, financing, and dividend decisions cannot be overemphasized

Answer 2

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• How do growth opportunities affect dividend decisions ?

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• The amount of growth a firm can sustain and its profitability is related to its dividend decisions, so long as the firm (because of managerial imposed to external market constraints) cannot issue additional equity.
• Firms with strong growth prospects maintain low target payout ratios. In fact, all the firms that experience above-average growth rates are expected to have low dividend payout ratios since, in line with the residual theory of dividends, a greater number of profitable investment opportunities should result (other things being equal in a greater need for earnings retention.
• This interrelationship among the firm’s growth, its profitability, and its investment, financing, and dividend decisions cannot be overemphasized.

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