Commonly announcement of cash dividend payment increases are viewed by the investing community as a positive development and that management believes earnings will increase in the future.
Alternatively, some investors may interpret a dividend increase announcement as a sign that a firm cannot find attractive investment opportunities. This interpretation may be relevant when a firm’s industry is transitioning from a growth to a mature stage.
Alternatively, when a company announces that it is cutting its dividend payments, this is viewed by investors as a negative.
Example: As the financial crisis of 2008 began to take shape, publicly traded U.S. banks began to announce dividend payment reductions in anticipation of mounting losses on their real estate loan portfolios.
The reactions to dividend changes above largely reflect U.S. investor sentiment and investing cultures in other countries may react differently to announced increases or cuts to dividend payments.
