Other dividend policy issues

The term clientele effect refers to the tendency of firms to attract investors who like their dividend policies. Three potential investors are described in

the table. Indicate which type of firms they are most likely to be attracted to$.$

Potential Investors

Types of Firms

Stockholders in their peak earning years

Investors who have a preference for current investment income

Retired individuals, pension funds, and university endowment funds

Stay Swift Corp. is a typical company that is very concerned with meeting investors' expectations and keeping investors happy. Its earnings tend to

fluctuate from year to year because of the nature of the business the company is in$.$ Which of these statements most likely describes Stay Swift

Corp.$\text{'}$s dividend policy?

Stay Swift Corp. most likely pays very large dividends in years with high earnings and small dividends in the years with low earnings.

Despite the fact that Stay Swift Corp.$\text{'}$s earnings tend to fluctuate from year to year, the company most likely pays a predictable, stable

dividend each year.