What is true regarding companies and dividends?

Study for the Arizona State University Fin300 Final Exam. Prepare with multiple choice questions, each question comes with detailed hints and explanations. Get ready for your finance fundamentals exam!

Preferred stocks typically have a specific requirement for dividends, which are usually set as a fixed percentage of the stock’s par value. Unlike common stocks, where the company’s board of directors has discretion over dividend payments, preferred stock dividends are generally required to be paid before any dividends can be issued to common shareholders. This characteristic is what makes preferred stocks unique; they offer a more predictable income stream through dividends compared to common stocks, which may not pay dividends at all or may vary widely in their dividend policies.

The other statements do not accurately reflect the nature of dividends. Not all companies are required to pay dividends, as some may choose to reinvest profits back into the business instead. Dividends are not legally mandated to be paid on a quarterly basis; companies can choose to pay them at different intervals or even not at all. Additionally, dividend payments are not restricted by the age of shareholders; anyone who owns shares, regardless of age, is entitled to receive dividends as long as they meet any necessary ownership requirements set by the company.

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