Final answer:
A company's sustainable growth rate increases when the dividend payout rate decreases. The retention rate of dividend and the dividend yield do not directly affect the sustainable growth rate.
Step-by-step explanation:
In order for a company's sustainable growth rate to increase, the dividend payout rate must decrease.
The sustainable growth rate is the rate at which a company can grow without relying on external financing or diluting its shares.
When the dividend payout rate decreases, it means that the company is retaining more of its earnings rather than distributing them to shareholders as dividends.
This allows the company to reinvest the retained earnings back into the business, which can lead to higher growth.
The retention rate of dividend is not directly related to the sustainable growth rate.
The retention rate refers to the percentage of earnings that a company retains to reinvest in the business, rather than paying out as dividends.
While increasing the retention rate can potentially lead to higher growth, it does not directly impact the sustainable growth rate.
The dividend yield is the dividend paid by a company per share divided by the stock price. It is not directly related to the sustainable growth rate.
The dividend yield reflects the income generated by an investment in the company's stock, but it does not impact the company's ability to grow sustainably.