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    Sep 1, 2012, 11:07 AM
    In the real world, dividends
    In the real world, dividends
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    are usually more stable than earnings.

    fluctuate more widely than earnings.

    tend to be a lower percentage of earnings for mature firms.

    are usually changed every year to reflect earnings changes, and these changes are randomly higher or lower, depending on whether earnings increased or decreased.

    are usually set as a fixed percentage of earnings, e.g. at 40% of earnings, so if EPS = $2.00, then DPS will equal $0.80. Once the percentage is set, then dividend policy is on “automatic pilot” and the actual dividend depends strictly on earnings.

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