Question

Vortex Corp. has been NYSE listed since 1995 and has paid regular quarterly dividends for the last 10 years. Vortex announced yesterday that it cut its quarterly dividend by 60%. The stock price fell from $56 to $50 when the announcement was made (no other news was announced by the firm). What is the apparently negative news contained or signaled by the Vortex managers in this dividend decrease announcement?

Answer 1

As we see that Vortex Corp has paid regular quarterly dividends for last 10 yrs.But after announcement of cut of quarterly dividend by 60%, stock price fell from $56 to $50.

This happens because investors sentiments are positive for company dividend policy. As we know Vortex Corp is regular & stable  dividend payout stock makes negative sentiments for those investors who are looking for stocks that can maximize dividend income.The dividend yield of company has decreased, then the investors interested in stable dividend income sells stock of Vortex Corp.The excess selling pressure result in fell of stock price of Vortex Corp.

Dividend payout also signifies the earning of thet firm if company is making profit it will distribute dividend otherwise vise versa. Here there may be possibilities of less profit for quarter, so the firm had reduce the dividend for quarter.