a) Explain 5 reasons why investors often see a cut in a company's dividend payment as a...

a) Explain 5 reasons why investors often see a cut in a company's dividend payment as a negative signal.

Solutions

Expert Solution

The reasons for seeing cut in a company's dividend payment as a negative signal

1) Weakening earnings because of systematic financial stress like in 2008-09 financial crisis, Covid etc.

2) Many investors are dependent on dividend income as their source of income. So cut in dividend payment will disapoint them.

3) Comapny might not have enough funds to meet the upcoming short term obligations. So therefore the management might cut dividend payment that fiscal year to pay the obligation.

4) Company would cut dividend to pursue inorganic mergers and acquisition to hide its poor performance by acquiring companies which investors are suspicious of.

5) Low dividends payments will result in lower stock price as per Dividend discount model. As per dividend discount model the price is equal to discounted value of all the dividends. Cut in dividend payment will result in lower future dividend payment and low stock price.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Explain why investors often see a cut in a company’s dividend payment as a negative signal....

Explain why investors often see a cut in a company’s dividend payment as a negative signal. (b) If a company is planning a cut in its dividend how should it go about this? © What are the potential consequences for companies whose dividend policies are out of step with their financial performance? (d) What impact is a recession likely to have on companies’ dividend yields? (e) Is a high dividend yield a good thing or a bad thing for investors?...

Company X just made a dividend payment of $0.50 per share. Investors expect the dividend to...

Company X just made a dividend payment of $0.50 per share. Investors expect the dividend to grow by 11% per year in the first two years and then by 3% per year starting in the third year. What's the maximum price investors are willing to pay for Company X's stocks if they require an annual return rate of 13%?

Is a stock dividend influential for investors - or would the investor prefer to see equity...

Is a stock dividend influential for investors - or would the investor prefer to see equity growth (increased value of share prices) rather than distribution of funds? Please explain.

5 reasons as to why monopolistic competition exists and 5 reasons as to why oligopolistic competition...

5 reasons as to why monopolistic competition exists and 5 reasons as to why oligopolistic competition exists

There are a plethora of reasons why the dollar amount of a company's inventory in the...

There are a plethora of reasons why the dollar amount of a company's inventory in the accounting records differs from the dollar value of the physical inventory count. Obviously theft by employees and customers is one reason for the disparity, but there are many others. In one-paragraph discuss another reason why the physical inventory count may not agree with the amount of inventory in the accounting records. Then discuss a strategy or internal control measure to put in place to...

Why are investors in the recent past hungry for dividend yielding stocks?

Q. See Case Study F. Explain two reasons why workers are asked to fill out the...

Q. See Case Study F. Explain two reasons why workers are asked to fill out the required documentation in the form of feedback documents, in order to assess howwell they worked as a team. What good will this do? CASE STUDY F Conquer all - Tasks Given the identified split in the packing department at Conquer All, management has decided to take action by asking workers to pair up with someone they don't know to work on some problem-solving activities....

Question