6. You’re a financial analyst for a large mutual fund. You’re doing an analysis of the Truebright Apparel Company, which makes stylish cotton clothes for teenagers.

The company has recently been under attack by foreign competition and seems to have lost its edge in the fashion market. EPS fell from $2.00 to $1.80 to $1.20 over the past three years. Dividends were held steady at $1.00 per share in spite of the declining earnings for two years. Last year the dividend was raised to $1.50.

Why do you think the dividend was maintained and then raised? How would this affect your recommendation?