The correct answer is b. Firms in the industry should face similar risks and have similar investment needs.
Comparing the dividend yield and dividend payout to comparable firms can be misleading for several reasons, but the fact that firms in the industry should face similar risks and have similar investment needs is not one of them. In fact, comparing these metrics among firms in the same industry can provide valuable insights into their financial health and performance.
However, it is important to note that the following reason listed in option a is a valid concern: The entire industry may have an unsustainable dividend policy. If the dividend yield and dividend payout of all firms in an industry are high, it could be an indication of an unsustainable dividend policy across the industry as a whole. This can be misleading because it may not reflect the individual financial strength or sustainability of a specific firm.
Other reasons that could make comparing dividend yield and payout misleading include differences in capital structure, growth prospects, profitability, and dividend policies among comparable firms. It is crucial to consider these factors and conduct a comprehensive analysis when comparing dividend metrics across companies.