Final answer:
The stockholders' equity will increase when dividends are paid.
Step-by-step explanation:
The answer to the question is A. Increase.
Dividends represent a direct payment made by a company to its shareholders. When a company pays dividends, it reduces its retained earnings and increases its stockholders' equity. Therefore, paying dividends will increase the stockholders' equity.
For example, if a company has $100,000 in retained earnings and it decides to distribute $20,000 as dividends, the stockholders' equity will increase from $100,000 to $120,000.