If a stock's dividend increases, what will happen to the stock's price? Will increase, Decrease, or...

If a stock's dividend increases, what will happen to the stock's price?

Will increase, Decrease, or will not change.

Expert Solution

It will be dependent upon the type of the dividend-

A. If it is a cash dividend then, the dividend is to be paid out from the share price of the company and in that case the share price of the company will decrease in order to adjust with the amount of the dividend which is to be paid to the shareholders. Hence, when the cash dividend of the stock will be increasing it will be that the price of the the company will decrease to adjust with the the effect of increase in dividend.

B. However if it is a stock dividend, the share price will be generally increasing.

But,we will have to also look it from the another perspective of reaction of the market participants because when the dividend of the stock will be declared, it will mean that the price of share will generally increase as the market participants will be satisfied about the decision of the company to distribute dividend because distribution of dividend reflect that company is trying to fulfill the need of the shareholders, so it can be having various different reaction in different situation.

jeff jeffy answered 2 years ago

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