Which of the following statements about dividends is true?

Dividends are a way for companies to distribute a portion of their profits to shareholders, and the decision to declare dividends is typically made by the company's board of directors. This process involves assessing the company’s financial health, profitability, and existing obligations, and the board's declaration is important because it signals the company's commitment to returning value to shareholders. Unlike other aspects of corporate finance, which might be mandated by law or contract, the declaration of dividends is at the discretion of the board.

The fact that dividends must be declared by the board highlights the governance role of these directors and ensures that dividends are a well-considered decision reflecting the company's strategy and financial situation. This model serves to protect both the company's interests and those of its shareholders by ensuring dividends are only issued when financially prudent.