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In: Finance

(b) What impact is a recession likely to have on companies' dividend yields?

(b) What impact is a recession likely to have on companies' dividend yields?

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Expert Solution

Recession will be likely to reduce the dividend yield in the company because the profits of the company will be going lower in recession because of decrease in Sales and decrease in growth perspective of a companyand the company will be likely to retain their profits.

When there is a recessionary like scenario, it will mean that the demand in economy will be slowing down and it will lead to lower amount of sales volume generation in the company, and it will also lead to lower profits of the company so when there would be lower profits then the dividend yield will also be decreasing because the company will be trying to retain their profits rather than paying dividend, because they will be trying to protect themselves against any unfavourable scenarios and they will be trying to reduce the dividend payments as they will be trying to to provide themselves with higher liquidity and higher solvency.

When there is a recession, it will be leading to cutting of growth perspective of the company and company will be likely to retain more of the cash than paying dividend because the company will be protecting itself against adverse scenario in the economy.

jeff jeffy answered 2 years ago
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