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A company, which has had a history of high growth and pays no dividends, announces that...

A company, which has had a history of high growth and pays no dividends, announces that it will start paying dividends next quarter. How would you expect its stock price to react to the announcement? Why?

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Answer #1

When a company announces that it will start paying dividends next quarter, we can expect the stock price to increase significantly reacting to the announcement.

This is because, a compnay start paying dividend sends a positive signal to the market that the performance of the company is going to be very well. After all, the company must generate enough cash to pay dividends. If the company can start paying dividends, then it has generated enough cash to pay dividends, which is a positive.

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