Certified Financial Management Specialist Practice Exam

Stable dividends are most likely to appeal to which type of investors?

1. Speculative investors

2. Income-focused investors

3. Growth-oriented investors

4. Short-term traders

The correct answer is: Income-focused investors

Stable dividends are particularly attractive to income-focused investors because they seek a steady stream of income from their investments rather than relying solely on capital gains. These investors prioritize the predictability and reliability of cash flows that come from dividends, as this provides them with a consistent source of revenue, which is especially important for individuals who may be relying on these funds for living expenses, such as retirees. Income-focused investors often gravitate towards companies with a history of paying stable or increasing dividends, as this signals financial health and the company’s commitment to returning value to shareholders. By contrast, speculative investors, growth-oriented investors, and short-term traders may prioritize price appreciation or quick gains over a regular income, making dividends less appealing to them. Thus, the characteristic of stable dividends aligns closely with the objectives of those who focus on income generation.