Module 2 Quiz

What is the difference between a Dividend King and a Dividend Aristocrat?

Dividend Kings are companies that have raised dividends for at least 25 years, while Dividend Aristocrats have done so for 50 years Dividend Kings and Dividend Aristocrats are the same, just two names for the same type of company Dividend Kings are companies that have increased dividends for 50 consecutive years, while Dividend Aristocrats have done so for at least 25 consecutive years and are part of the S&P 500 Dividend Kings are U.S. companies, while Dividend Aristocrats are international companies

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Why can a high payout ratio for a company be a bad sign?

It means the company is reinvesting most of its profits instead of paying them out It shows the company may be paying out more in dividends than it can sustainably afford, or that it is suffering a drop in profits. It guarantees the company will cut its dividend soon It means the company’s share price will automatically fall

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Why do cyclical companies typically have a lower dividend safety.

They never earn profits, so they can’t afford dividends Their revenues and profits fluctuate with economic cycles, making it harder to consistently pay dividends They are required by law to pay lower dividends than stable companies Dividends are illegal in industries that are cyclical

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Why do consumer staples companies typically have a high dividend safety?

They never experience competition from other companies People buy their products consistently, even during recessions, which makes their cash flows more stable They are legally required to pay dividends every quarter Their share prices never decrease in value

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Why do REITs (Real Estate Investment Trusts) typically pay out high dividends?

They are not allowed to own physical real estate They do not earn rental income from their properties They are guaranteed by the government to pay consistent dividends every month They are required by law to distribute at least 90% of their taxable income to shareholders

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Why can a high dividend dividend yield be a red flag?

The company’s share price may have fallen because of financial problems It always means the company is guaranteed to increase dividends It means the company is in debt or being beat by competition It proves the company has no competition in its industry

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