Certified Financial Management Specialist Practice Exam

Which of the following describes how dividends are typically paid out?

1. On a per-share basis

2. On an annual basis only

3. Only during profitable years

4. As a fixed amount regardless of ownership

The correct answer is: On a per-share basis

Dividends are typically paid out on a per-share basis, which means that the amount of dividend received by a shareholder is directly proportional to the number of shares they own. This method reflects the ownership stake of each shareholder in the company. For example, if a company declares a dividend of $1 per share and a shareholder owns 100 shares, they would receive $100 in dividends. This approach ensures that all shareholders are compensated based on their investment in the company. While dividends can indeed be influenced by a company's profitability, they are not strictly limited to being paid only during profitable years, nor are they confined to an annual payout schedule. Companies may choose to pay dividends quarterly, semi-annually, or annually based on their financial strategy. Moreover, declaring dividends as a fixed amount regardless of ownership would not accurately represent the equity structure of the company and could lead to imbalances in shareholder treatment. Therefore, the per-share method is a widely accepted and logical approach for distributing dividends among shareholders.