Question

Normal cash dividends that are increased regularly tend to send which message? The firm is discontinuing...

Normal cash dividends that are increased regularly tend to send which message?

The firm is discontinuing all stock repurchases.

The firm expects to be profitable.

The firm is planning on downsizing.

The firm is attempting to reduce its tax bill.

The dividends are expected to increase the firm’s agency costs.

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Answer #1

Normal cash dividends that are increase regularly is a good sign of the earnings and the future of the firm. Therefore, the firm expects to be profitable. (2nd option)

It does not give any intention that firm is discontinuing all stock repurchases. It could well declare cash and stock dividends at the same time.

Again, regular dividends is a good sign, so if the firm were downsizing, it would distribute considerably less dividends.

Dividends do not give any tax benefits to the firm.

Agency costs generally occur due to conflict among shareholders and management. Regular increasing dividends are likely to keep the shareholders happy.

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