Asked by Darren Elliot on May 31, 2024
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Investor reaction to a decrease in dividends following a period of deteriorating earnings and declining stock price is likely to be:
A) they take it in stride, assuming earnings and dividends will return to normal shortly, and are unlikely to either sell the stock or buy more.
B) they take it as a very bad omen, a statement that management doesn't think the downturn in earnings is temporary, and so they tend to sell the stock forcing its price down further.
C) they see it as an opportunity to get more of the stock while its price is temporarily depressed, and their purchases tend to drive the price back up.
D) they tend to sell just enough stock to make up the lost dividend income, but no more.
Decrease in Dividends
A reduction in the amount paid out to shareholders from a company's earnings, often signaling a change in financial health or strategy.
Deteriorating Earnings
A condition where a company experiences a decline in profitability and earnings over time.
Dividend Income
Income received from owning shares of a company that pays dividends, which is a portion of the company's earnings distributed to shareholders.
- Examine the differences in numerous dividend policy theories and assess their influence on the pricing of stocks.
- Capture the essence of how dividend decisions impact stockholders and the firm's approach to financial management.
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Learning Objectives
- Examine the differences in numerous dividend policy theories and assess their influence on the pricing of stocks.
- Capture the essence of how dividend decisions impact stockholders and the firm's approach to financial management.
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