Question

(a)

Explain why investors often see a cut in a company’s dividend payment as a negative signal.

(b)

If a company is planning a cut in its dividend how should it go about this?

©

What are the potential consequences for companies whose dividend policies are out of step with

their financial performance?

(d)

What impact is a recession likely to have on companies’ dividend yields?

(e)

Is a high dividend yield a good thing or a bad thing for investors?

(f)

Discuss the practical issues to be considered by a company when deciding on the size of

its dividend payment.

(g)

XYZ’s current cum dividend share price is £3.45 and the company has just announced a dividend per share of 20p. At what rate do investors expect dividends to grow in the future if the current share price is considered to be fair and if shareholders require a rate of return of 15 per cent?

(h)

Given the assumptions made by Miller and Modigliani’s dividend irrelevance theory, do you consider their conclusions to be logical?

Answer 1

A-Most investors are interested in cash dividend distributed by the company as it gives income to those who have invested in the company to get return on company every year. This also promises the future growth of the company.

B-If a company wants to cuts dividend it should first takes the shareholders and other stateholders into confidence and explain why this cut is required and how it will benefit them in future.

C-1-Selling of shares by the investors in equity.

2.Decrease in price of shares in the trading

3-Image value will decrease

4. Market capitalization will decrease

5-Will effect the financial performance of company

D=In recession the possibility of low income and low sales will effect in low dividends to investors.