XYZ Corporation has declared a cash dividend of $2 per share for its upcoming distribution. The firm has outstanding 1 million shares, and prior to announcing this dividend, the company’s earnings per share (EPS) was $5. The company maintains a policy of using retained earnings for new growth opportunities but evaluates its dividend policy based on shareholder preferences.
As a CFA Level II analyst, you are tasked with assessing the impact of this dividend declaration on XYZ Corporation’s financial ratios, particularly its return on equity (ROE) and payout ratio. Which of the following statements accurately describes the impact of the dividend declaration?