Page 15 - PowerPoint Presentation
P. 15
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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