• Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2021). Corporate finance: Core principles and applications (6th ed.). McGraw-Hill.
  • Chapter 16, "Dividends and Other Payouts," pages 480514. This chapter discusses dividend policy deals with real returns to shareholders. Short-term financial planning is the essential discipline of finance to ensure that the firm's liquidity is intact and that ongoing operations of the firm are secure.

Dividend policy deals with real returns to shareholders, and, thus, it has a profound impact on stock valuation and price. Dividend policy is a signal to shareholders and other stakeholders. If dividends are increased, shareholders will assume that management likes the future prospects of the firm. Likewise, if dividends are not increased or, in fact, cut or suspended, that is a very negative telling sign.

By examining the importance of dividends to shareholders, you will see that half of the historical returns of the stock market came from dividends. In this post, discuss the following:

• What are some of the factors that go into managements decision to initiate payment of dividends, or to increase or decrease dividends? Look at the history of a specific company, and use the information to explain.
• How can dividend policy impact the price of a stock?
• Why do some investors love dividends and some abhor dividends?