3M pays quarterly cash dividends on its common stock. Suppose 3M forecasts earnings per share of $4.00 this year and $3.80, $3.20, $.4.80, and $.08 over the following four years, respectively, and believes it can maintain a long-term payout ratio of ¼. 3M revises its dividends once per year, and the quarterly dividend is one-fourth of the annual dividend. Which of the following annual dividend patterns would you recommend?
1. $2.00, $1.05, $0.85, $.1.45, $1.25
2. $1.20, $1.00, $0.75, $0.95, $1.40
3. $1.00, $0.95, $0.80, $1.20, $1.02
4. $0.80, $0.80, $0.95, $1.00, $1.05