Impact of Special Dividend on Financial Ratios

Hard Dividends And Repurchases Impact On Financial Ratios

ABC Corporation is a publicly traded company that has maintained a steady dividend payout ratio of 40% over the past several years. Recently, the management announced a special dividend of $3 per share in addition to the regular quarterly dividend of $1 per share. Analysts following ABC Corporation predict that the special dividend will significantly impact several financial ratios important to investors.

Which of the following statements correctly describes the impact of the special dividend on ABC Corporation's financial ratios?

The special dividend will decrease the return on equity (ROE) due to an increase in retained earnings.

The special dividend will decrease the debt-to-equity ratio as it increases the total equity.

The special dividend will decrease earnings per share (EPS) in the short term due to the outflow of cash.

Hint

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