Is the dividend policy irrelevant for the value of a stock? If so, why is it...

Is the dividend policy irrelevant for the value of a stock? If so, why is it the case that increases in dividend tend to be followed by increases in share prices?
What are some of the pros and cons of a company paying high dividends?
What in your view we still don't understand about dividend policy?
What is a rights offering and what is the rights offering puzzle?

Solutions

Expert Solution

1. Dividend policy is irrelevant for the value of the stock because it is to be the adjusted from value of the stock and hence dividend is not some additional appreciation in the total value of the stock.

The amoun of dividend is declared it will mean that it will have to be adjusted with the price of this stock and it was to be paid to the shareholders from those prices only so it is not some additional kind of appreciation in the overall value of share capital.

Increase in dividend will be followed by increase in share prices because it is taken in a a positive manner by the market that dividend has been declared by the company because-

A. Market believes that company is making high levels of profit to pay out the dividend

B. Markets also believes that the company has enough Liquidity in its hands and it is sitting on a high level of cash.

C. It also reflects the determination of the company to serve its share holders.

jeff jeffy answered 1 year ago

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