What is the impact on the stock market of cash dividends?
A cash dividend is cash payment to a corporation’s shareholders, distributed from current earnings or accumulated profits. An announcement of cash dividends would intuitively seem to have some impact on a stock’s return. To move a stock’s price, however, the amount of the dividend or the nature of the dividend must be a surprise. Dividends are the only cash payments that are regularly distributed by corporations to their shareholders. The board of directors decides upon the dividend, which is declared and distributed quarterly. The dividend can be of almost any amount and shareholders have no guarantee of dividend payments. However, dividend policies tend to be one of the more stable and predictable elements of a company. Decreasing or eliminating a dividend is tantamount to an announcement that the firm is financially distressed. Directors weigh dividend policies very carefully, rarely lowering dividends unless they have to, and not raising dividends unless they are confident that the
