Residual dividend approach

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Residual dividend approach

An approach that suggests that a firm pay dividends if and only if acceptable investment opportunities for those funds are currently unavailable.

Residual Dividend Approach

A dividend policy for a publicly-traded company stating that the company will not pay dividends to shareholders unless there are no acceptable investment opportunities for the money that would be paid as dividends. Companies following a residual dividend approach therefore have a high plowback rate. This approach is most common among start-ups that are seeking to establish themselves.