The correct answer is C. Both 1 and 2.
A dividend policy is a decision made by a company’s board of directors regarding how much of the company’s earnings should be distributed to shareholders as dividends. The two main factors that a company considers when setting its dividend policy are dividend payout and stability of dividend.
Dividend payout is the percentage of a company’s earnings that is paid out as dividends. A high dividend payout ratio indicates that a company is returning a lot of money to its shareholders, while a low dividend payout ratio indicates that a company is reinvesting more of its earnings back into the business.
Stability of dividend is the consistency with which a company pays dividends. A company with a stable dividend policy is more likely to continue paying dividends even during tough economic times, while a company with an unstable dividend policy may cut or eliminate dividends if its earnings decline.
Both dividend payout and stability of dividend are important factors to consider when evaluating a company’s dividend policy. A company with a high dividend payout ratio and a stable dividend policy is likely to be a good investment for income-oriented investors.