Question

risky companies tend to have lower target payout rates.What does this statement mean??Why do you think so

Answer 1

Target payout ratio is expressed as ratio of dividend per share to earnings per share (Dividend per share / Earnings per share). In other words, Target payout ratio denotes how much portion of earnings of company is paid / distributed as dividend among the stockholders (shareholders). Risky companies tend to maintain lower target payout ratio because they want more money with them in form of retained earnings for the future growth i.e., they do not intend to pay higher dividend among the shareholders as they are concerned with high growth in the future.