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Southern Established Inc and Price Drops

Southern Established Inc. has been paying out regular quarterly dividends ever since 1983. It just slashed the dividend by half in the current fiscal quarter and a more severe cut is to be underway. Sothern's stock price dropped from $ 35.25 to $ 31.75 when the dividend cut was announced. Explain the possible reasons for this price drop.

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Firm's Ability to Pay Dividend depends on its funds requirements for growth, shareholders' desire and liquidity. A growth firm should set its dividend rate at a low level (because of its high needs for funds) and move towards its target slowly.

Practical considerations for payment of dividend are:
Financial Need of company, Shareholders Expectations, Closely/Widely Held Company, Constraints on Paying Dividends, Legal Restrictions, Liquidity, Borrowing Capacity, Access to the Capital ...

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