Galaxy House is currently trading for $10 with 1 million shares outstanding. Which of the following actions would be the most credible signal that management believes that the long-term prospects for a company has improved?
A) Pay a $0.20 special dividend in addition to the company's $0.20 regular quarterly dividend.
B) Increase the company's regular quarterly dividend from $0.20 to $0.40.
C) Initiate an on-market share buy-back of 2 per cent of the company's shares.
D) Initiate an equal access buy-back to buy-back for 2 per cent of the company's shares.

Question

Quizplus · Accepted Answer

Increasing the regular quarterly dividend from $0.20 to $0.40 signals that management is confident in the company's ability to generate sustained earnings and cash flow. This signals a greater level of confidence in the long-term prospects of the company compared to paying a special dividend or initiating a buyback, which may be viewed as a one-time or short-term boost to shareholder returns.

Galaxy House Is Currently Trading for $10 with 1 Million