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Dividends: stock market reaction to increases or decreases

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What is the average stock market reaction to: a) a dividend initiation, b) a dividend increase, c) a dividend termination, d) a dividend decrease? Are these reactions logically consistent?

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Solution Summary

The 297 word solution explains the market reaction to changes in dividend policies together with real world examples of the consequences of changes with respect to pricing of the stock.

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Stock market reactions to changes in dividend policies may not always be logical or true, but they tend to run this way:

a. A dividend initiation policy usually signifies that a company has become a 'value' holding rather than a 'growth' company. Microsoft was notable when it began paying dividends. Google doesn't pay dividends yet but I wouldn't be surprised if it does in the near future.

b. A dividend increase causes investors to ...

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