Signals from Dividend Policies

  • 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.

R Programming Bundle: 25% OFF

Get our R Programming - Data Science for Finance Bundle for just $29 $39.
Get it now for just $29