If a stock price increased after a dividend increase, investors probably interpreted the increase as a signal from management that the company expects sustainably higher cash flows in the future.

Question

Quizplus · Accepted Answer

When management increases the dividend, it signals to investors that they believe the company will generate sustained profits and cash flow, leading to a potential increase in the future stock price. Therefore, if the stock price increases after a dividend increase, it is likely that investors interpreted the increase as a signal of higher future cash flows.

If a Stock Price Increased After a Dividend Increase, Investors