Impact of Dividend Increase on Financial Ratios

ABC Corporation is evaluating its dividend policy and is considering a dividend increase as part of its strategy to attract investors. The company currently has a high debt-to-equity ratio but is generating consistent free cash flows. The CFO is concerned about the potential impact of the dividend increase on the company’s financial ratios, particularly the return on equity (ROE) and the debt-to-equity ratio.

Which of the following statements accurately describes the expected impact of the dividend increase on ABC Corporation’s financial ratios?