Question

Dew Drop In, Inc. announces is quarterly dividend will increase from $3.80 to $4.00. After the announcement, the price of Dew Drop In, Inc.'s stock drops. The most likely explanation is that

Answer 1

Answer:

When there is increase in dividend paid or announced, and still the price does not increase, this is the situation where,

the investor expected even a higher rate of growth in dividend than the growth attained.

In this case, also the dividend tends to grow but most probably as an investor the expected return would be higher.

And the growth in dividend does not meet the expectations of investor.