Assume Company X has been paying out consistent dividends over the past 40 years. This fiscal year, the company reports a sharp decline in the dividend it plans to pay out. The most likely reaction of the market will be:
A) Company X's stock price will decrease
B) Company X's stock price will increase initially and then decline
C) Company X's stock price will remain constant
D) None of the above

Question

Quizplus · Accepted Answer

Outsiders closely monitor dividend payments. It is generally perceived that the level of dividend payments is related to the expected long term "core earnings." Accordingly, dividend increases are usually accompanied by stock price increases while dividend reductions are most often met with stock price declines.

Assume Company X Has Been Paying Out Consistent Dividends Over