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.
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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