Page 197 - 5.2 i. Manac Finance ITC Summarised Notes
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THE DIVIDEND DECISION
Practical factors affecting the dividend decision
Dividend stability and information content (signalling effect)
• A higher dividend communicates to shareholders that the company has
performed well and that the directors believe this will be maintained in future
years - as a consequence the stock price will rise. If the dividend is cut, this will
be seen as imparting negative news about the company’s future prospects and
cause the stock price to fall.
• A stable, steadily growing dividend over an extended period is one of the
distinctive characteristics of a successful company.
Other companies in the same industry
• If will be difficult to reduce the dividend for future investment if competitors are
distributing a higher dividend.
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