In 1991 the Big 3 automakers all slashed dividends in response to weak earnings reports: Ford by 47% (from 75 cents to 40 cents), and both General Motors and Chrysler cut their dividends in half. USA Today (April 21, 1991) noted that “some analysts were predicting a bigger Ford dividend cut [but] the Ford family [who have a controlling interest] played a role in keeping the dividend from being chopped further. There is a general feeling that ‘widows and orphans’ live off the Ford dividend, including some ‘widows and orphans’ named Ford.” REQUIRED:

a. What is meant by the phrase “widows and orphans?”

b. Describe several dividend strategies used by major U.S. corporations, and explain how “widows and orphans” fit into Ford’s strategy.

c. The market value of Ford’s outstanding stock remained unchanged at $31 7/8 after the company announced the 47 percent dividend cut. Provide a plausible explanation for how this could be