An increase in dividends might not increase price and may actually decrease stock price if:
A) the dividend increase cannot be sustained.
B) the firm does not maintain an exact dividend payout ratio.
C) the firm has too much retained earnings.
D) markets are weak-form efficient.

Question

Quizplus · Accepted Answer

If the dividend increase cannot be sustained, investors may believe that the company is experiencing financial difficulties or uncertainty, which could lead to a decrease in stock price. In this scenario, investors may view the dividend increase as a temporary measure that the company may not be able to maintain, causing them to sell their shares and decreasing demand for the stock, leading to a decline in price.

An Increase in Dividends Might Not Increase Price and May