Would you please help me to understand what this means.

"Risky companies tend to have lower target payout ratios and more gradual
Adjustment rates.”

Thank you.


Denise

“Risky companies tend to have lower target payout ratios and more gradual
adjustment rates.” Explain what is meant by this statement. Why do you think it is so?

Answered a question with a question.

Risky comoanies tend to have lower target payout ratios and more gradual adjustment rates. 'Explain what is meant by this statement. Why do you think it is so?

Risky comoanies tend to have lower target payout ratios and more gradual adjustment rates. 'Explain what is meant by this statement. Why do you think it is so?

Quote:

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Originally Posted by dju2455

Would you please help me to understand what this means.

"Risky companies tend to have lower target payout ratios and more gradual
adjustment rates.”

Thank you.


Denise

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Risky companies have wide fluctuations in profits. Hence they will have difficulty in maintaining dividends
Even when profits are high, they will not like to pay high dividends but will like to retain a higher proportion of
Their profits both for increasing their earnings and for having as a cushion at the time of low profits. Hence they
Keep their target payout raio at a lower level.
This will mean that when the profits are low, the amount of dividends will be much less. So there will be no
Scope for equalising the dividends by keeping the payout ratio to be flexible. Hence the adjustment of the
Retained Earnings will take place in a slow and gradual manner by increasing the payout ratio slowly, if
There is enough accumulation of Retained Earnings.

I have a clearer understanding of the subject matter

Risky companies tend to have lower target payout ratios and more gradual
Adjustment rates. Please explain