Which of the following statements is correct?
A) one nice feature of dividend reinvestment plans (drips) is that they reduce the taxes investors would have to pay if they received cash dividends.
B) empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result share prices fall when dividend increases are announced. the reason is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.
C) if a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. however, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.
D) dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with drips are utilities.
E) under the tax laws as they existed in 2008, a dollar received for repurchased stock must be taxed at the same rate as a dollar received as dividends.

Question

Quizplus · Accepted Answer

Dividend reinvestment plans (DRIPs) can be structured to either issue new shares or purchase existing shares on the open market. If a company wants to raise new equity, issuing new shares through a DRIP is beneficial. If not, purchasing existing shares is preferable.

Which of the Following Statements Is Correct