The market rewards firms that adopt a fixed or increasing level of dividends rather than a fixed dividend payout policy through higher share prices.

Question

Quizplus · Accepted Answer

The market tends to value companies with a stable or increasing dividend policy as it indicates that the company is financially stable and able to consistently generate profits. This stability encourages investors to hold onto the stock, which leads to higher demand and higher stock prices. Conversely, the market may view a variable dividend payout policy as a sign of instability or uncertainty, which can lead to lower stock prices.

The Market Rewards Firms That Adopt a Fixed or Increasing