How does price earnings (P/E) ratio affect the dividend policy of a business?
Every business set up for the purpose of making profit is primarily interested in reaching and maintaining a high level of performance where revenue exceeds expenses. It measures its performance in terms of of the price of its shares, dividends and number of issued shares. A business's dividend policy including the stability of the policy, is tied to the business's earned profits, cash flows, prospects of growth and the preferences of shareholders or investors. Shareholders or investors considering investment options would assess dividend policies and results of shareholder or investor ratios (especially the price earnings ratio) of available businesses before making an investment decision.. The dividend policy indicates the proportion of earned profits a business is willing to pay out and the regularity at which dividends are paid out. Now note, when a company is not making stable profits, their shares will not yield regular dividends. What is the price earning...