A residual dividend policy differs from a stable dividend policy in the following respect:

a.

Dividends are a function of operational costs under the stable policy method but are a function of investment needs under the residual policy method.

b.

Dividends are a function of long-term profits under the stable policy method, but are a function of investment needs under the residual policy method.

c.

Dividends can only be stable under a residual policy if profits are constant.