A public utility announced a new plan whereby the full amount of earnings would be paid to the stockholders, the current cash dividend per sharewould be kept constant, and the remainder of the dividendwould be in the form of a stock dividend. This policy would enable the firm to “retain and reinvest in the business a higher percentage of our earnings than we would retain under our past dividend policy and help us to finance our expansion program and cut down, if not eliminate, the need for periodic offerings of additional common stock.”

Evaluate the policy.