Back to A Attempts: Keep the Highest: 15 7. Factors that influence dividend policy Aa Aa Distribution decisions are complicated and involve the understanding of critical strategic factors that affect the policy and value of a firm. Thus, the management of any firm has to consider the constraints on dividend payments, the availability and cost of alternative sources of capital, and other external factors when they create and implement their distribution policy Based on your understanding of the constraints on dividend payments, identify the type of constraint this candition represents. Assume that all other factors are held constant. States that common stock dividends cannot be paid if the company has not paid its preferred stock dividends O Impairment of capital rule O Preferred stock restriction Bond indenture A company's dividend policy can also be affected by factors internal to the organization and by the external (macroeconomic) environment in which the business operates. In the table that follows, identify which factors, in general, tend to favor high or low dividend payout ratios Favors a Favors a High Payout Low Payout