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You observe that a firm’s stock rises after it announces an increase in its dividend. According...

You observe that a firm’s stock rises after it announces an increase in its dividend. According to Modigliani Miller, would this contradict the line of reasoning that dividend policy is irrelevant?

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According to Modigliani Miller approach, dividend is completely irrelevant in determination of the share price of the company because this theory advocates that there is no relevance of dividend because it is ultimately to be adjusted with the share price of a company. Even if you pay dividend it is deducted from the share price so there is no advantage to the shareholders .It advocates that better growth oriented company will be reinvesting profit then distributing it's dividend so the dividend distribution is a sign of a weak company which is unable to grow according to this philosophy.

if company stock price rises after announcement of dividend that indicates that the share holders are bullish on the company but it is in complete contrast with dividend irrelevance theory according to modigliani Miller approach.

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