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In 1996, Kodak paid a cash dividend of $1.60 per share. At year-end 1996, Kodak shares were trading at about $80 per share. Between 1997 and 2001, Kodak paid $1.76, and in 2002 raised its dividend to $1.80. Yet, despite the stable dividend payout, the price of Kodak stock steadily fell, reaching $27 in 2003. At that time, the firm announced its intention to reduce its dividend to about $.50 per share in order to invest $3 billion in digital technology purchases. Investors reacted to the announcement by bidding down Kodak shares by 14 percent. On October 21, 2003, The Wall Street Journal reported that some of Kodak's larger shareholders attempted to persuade Kodak executives to abandon their plan. Discuss this issue.

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The market price of any security is discussed.

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The market price of any security is not determined by a single factor. Although in simplified valuation models we assume that we can determine the value of the firm based on current dividends and making an assumption about the future dividends. In the initial period of 1996-2003, the share price of Kodak was declining, as it was not able to do well good in the market. The industry in which it was operating was in matured phase or rather in decline phase and there were not enough growth opportunities available. Constant / increasing dividends provide two type clues to the market. 1. That the company is making good profits and hence they are ...

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