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 for this 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 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.

Question

Quizplus · Accepted Answer

A new stock dividend reinvestment plan allows a company to issue new shares, raising new equity capital. If a company does not need new equity, an open market purchase plan, where shares are bought on the market, is more appropriate.

Which of the Following Statements Is Correct