Which of the following is true regarding cash dividends?

Which of the following is true regarding cash dividends?

• A. They may vary based on company profits
• B. They are only issued during the first quarter
• C. Investors are always guaranteed to receive them
• D. They can only be paid in company stock

Answer: (A)

Cash dividends are typically paid out of a company’s profits, making their amount variable and dependent on the company's financial performance. If a company experiences higher profits, it may choose to increase the dividend payout, while lower profits could lead to reduced dividends or even a suspension of dividend payments altogether. This variability reflects the company's ability to generate income and its decision regarding profit distribution to shareholders. The other statements do not accurately represent how cash dividends work. Option B incorrectly implies a specific timing for dividend issuance; dividends can be paid at various times throughout the year, depending on the company's declared schedule. Option C suggests that dividends are guaranteed, which is not true since they depend on the company’s performance and board decisions. Option D limits the form of dividends to only stock, but cash dividends must be paid in cash, although companies can also offer stock dividends as an alternative. Thus, the correct statement relating to cash dividends is that they may vary based on company profits.

Cash dividends are typically paid out of a company’s profits, making their amount variable and dependent on the company's financial performance. If a company experiences higher profits, it may choose to increase the dividend payout, while lower profits could lead to reduced dividends or even a suspension of dividend payments altogether. This variability reflects the company's ability to generate income and its decision regarding profit distribution to shareholders.

The other statements do not accurately represent how cash dividends work. Option B incorrectly implies a specific timing for dividend issuance; dividends can be paid at various times throughout the year, depending on the company's declared schedule. Option C suggests that dividends are guaranteed, which is not true since they depend on the company’s performance and board decisions. Option D limits the form of dividends to only stock, but cash dividends must be paid in cash, although companies can also offer stock dividends as an alternative. Thus, the correct statement relating to cash dividends is that they may vary based on company profits.