An increase in share price following an increase in dividends is logical if the:

Question

Quizplus · Accepted Answer

An increase in dividends can signal that the company expects to have higher future earnings, which can lead to an increase in the stock price. A is incorrect because borrowing to pay dividends can be viewed negatively by investors. C is irrelevant to this question. D is incorrect because the clientele effect, which suggests that investors who prefer high dividend-paying stocks will hold onto their shares even if the price increases, could influence the stock price.

An Increase in Share Price Following an Increase in Dividends