Certified Financial Management Specialist Practice Exam

Which dividend policy combines elements from multiple dividend strategies?

1. Stable Dividend Policy

2. Hybrid Dividend Policy

3. Constant Dividend Policy

4. No Dividend Policy

The correct answer is: Hybrid Dividend Policy

The hybrid dividend policy effectively incorporates aspects from various dividend strategies, allowing a company to adapt its dividend payouts based on its financial situation and market conditions. This approach provides flexibility; companies can maintain a stable base dividend while also offering additional distributions when surplus earnings are available. This method can be beneficial for firms that experience fluctuating cash flows, enabling them to support shareholder expectations without compromising financial stability. It harmonizes the predictability of a stable dividend policy with the responsiveness of a residual dividend policy, which distributes dividends based on leftover earnings after all profitable reinvestments are made. In contrast, other options focus on specific strategies. The stable dividend policy prioritizes consistency and predictability in dividend payments, the constant dividend policy maintains a fixed amount regardless of earnings, and the concept of having no dividend policy indicates a complete lack of regular dividend payments. None of these effectively combine different strategies like the hybrid policy does.