How would the price of a stock be affected by its dividend?

In: Business and Finance

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Paying a dividend costs the company and as such will decrease the value of the company and the stock.

If all other factors are equal, a buyer would prefer a stock that is expected to pay the higher dividend. If Company A is expected to pay $10 per share annually and Company B $8, an investor who wants to make 8% would be willing to bid $125 for a share of Company A but only $100 for Company B. On the date that a dividend is effective, a company's stock will drop by the amount of the dividend because that amount will be paid to the person who owned the stock at the beginning of that day.

First answer by Redbeard. Last edit by Knowledge. Contributor trust: 630 [recommend contributor]. Question popularity: 20 [recommend question]

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