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Impact of dividend policy on stock price

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Why do firms choose to make large increases in their dividends or start a stock repurchase program? Why would they choose one of these payout methods over another?

Why do firms choose to cut or eliminate their dividends? What usually happens to the stock price of a company that does this?

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Based on my several years history of investing in stocks, I have noticed that whenever companies have extra cash that they don't plan on using to finance their expansion, they usually distribute this extra cash to shareholders. This distribution can be through an extra, special dividend or stock repurchase.

The ...

Solution Summary

How does the method the company chooses to distribute cash to stockholders affect its prices?