Stable Rest [3]

Stable, Inc has for the last ten years been paying out 5% of the book value of equity as dividend. Rest, Inc has for the last fifteen years been paying 80% of after tax income as dividend. This year both Stable, Inc and Rest, Inc is lowering dividend payments by $10.

If the signalling hypothesis is correct, which of the following statements is correct?

1. The stock price of Stable, Inc goes down by less than the dividend amount.

2. The market thinks profitability of Stable, Inc is lessened.

3. The market thinks profitability of Rest, Inc is improved.