Question

4. Dividend Company is a large company that has been profitable and growing for a long time. In the most recent shareholders' report, the company announced that its profits grew again in the last quarter. Shareholders also received an increase in their dividends last quarter. Is the price of Dividend Company's stock likely to rise or fall? Explain your prediction.

Answer 1

The stock will rise.

Step-by-step explanation:

If I'm correct in my thinking, the price of Dividend's stock will rise. If the company can afford to pay its shareholders even more, and they publicly announced the rise in profits, then they must be aware of the possible and probable future of their sales.

Answer 2

For investors, dividends serve as a popular source of investment income. For the issuing company, they are a way to distribute profits to shareholders as a way to thank them for their support and to encourage additional investment. Dividends also serve as an announcement of the company's success. Because dividends are issued from a company's retained earnings, only companies that are substantially profitable issue dividends with any consistency. Though some companies may issue dividends to create the illusion of profitability, this is the exception rather than the rule.