Choose wisely. There is only one correct answer to each question.
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1.
Based on historical information, what might you expect a fair return to be for an established, dividend-paying stock?
Between 8% and 12%. Most established, dividend-paying companies would fall in a range between 8% and 12%.
2.
What is one thing that excess earnings would not pay for?
Dividends. Excess earnings don't exist until after dividends have been paid out.
3.
What might put a dividend in jeopardy?
Excess debt. Manageable debt levels and steady free cash flows are important factors that help ensure a steady or increasing dividend.
4.
How do buybacks boost EPS growth?
By decreasing the number of shares outstanding. EPS grows not only when the numerator (profit) expands, but also when the denominator (shares outstanding) shrinks.
5.
Amalgamated Widget has a payout ratio of 87%. This may indicate any of the following, except _______.
87% of dividends are guaranteed. The other two statements are possibly true--temporarily depressed earnings will inflate a firm's payout ratio, but 87% is a high number, and a firm that is paying out 87% of earnings probably doesn't have many reinvestment opportunities. However, the first answer--that 87% of dividends are guaranteed--is patently false. Dividends are never guaranteed.
