c.No personal income tax or corporate tax.
d.Availability of complete information.
e.There is no conflict between management and investors.
From these assumptions, dividend policy has no correlation with stock price. Investors only see returns, they don't care if those returns come from dividends or capital gains.
- Higher dividends will increase stock prices
The second opinion is that increasing dividend payments can increase the value of the company. Investors prefer dividends to selling their shares.
- Lower dividends will increase the stock price
The third opinion says that dividends actually cause losses for shareholders. This is based on the difference between income tax and capital gains.
In this case, Investors will believe that if the company has a stable dividend payout ratio goal and the ratio increases, investors will believe that management will announce positive changes in the company's expected profits. Increased dividends can have a positive impact on stock prices. According to Arthur j Keown quoted based on Bhattacharya's journal (1979: 259-503), if investors believe that companies that pay larger per-share dividends have high value, then unexpected dividend increases will be considered a happy signal.
This article was written to fulfill Dr. Darmawan's financial management course assignment.
