Assuming a return on equity greater than the required return, a decrease in the dividend payout ratio will cause a(n) _____ in the stock price.

Question

Quizplus · Accepted Answer

A decrease in the dividend payout ratio, assuming a return on equity greater than the required return, typically leads to an increase in the stock price. This is because the retained earnings are being reinvested in the company at a rate of return higher than what investors require, potentially leading to higher future growth and value.

Assuming a Return on Equity Greater Than the Required Return