The shares of companies that raise the amount of dividend they pay to their shareholders each year usually outperform the shares of companies that reduce their dividend. Since investors generally punish the shares of companies that reduce their dividend in successive years, the management of a company which decides to increase its dividend is believed to signal to investors that it is likely to earn sufficiently higher profits in the coming years to fund higher dividends. This positively affects the company’s share price as investors become more willing to buy the share, expecting a rise in profits.
source:-thehindu.
