ACCA Advanced Financial Management (AFM) Practice Exam

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When do companies typically pay regular cash dividends?

Monthly
Annually
Every quarter
Every six months

The correct answer is: Every quarter

Companies typically pay regular cash dividends every quarter because this frequency aligns with their financial performance reporting periods. Many companies aim to distribute dividends on a regular basis to provide shareholders with a steady income stream and signal to the market their profitability and stability. By paying out dividends quarterly, companies can maintain shareholder interest and satisfaction, while also adjusting the dividend based on earnings during the financial year. Distributing dividends monthly is less common, as it can create unnecessary administrative burdens and may not align well with the company's cash flow and operational rhythm. Annual payments can limit the attractiveness for shareholders seeking more frequent income, while semi-annual dividends are also not as prevalent as quarterly due to the preference of shareholders for more regular income distributions. Quarterly payments strike an optimal balance between providing regular income and not overextending the company's cash flow management.