takeing your quote of the empirical as accurate for the sake of this
discussion, the reason or reasons for that can be many but i would
start with that initiation of a dividend implies a certain level of
success excuting the business plan. however by the time a dividend
gets initiated that success is no longer a secret. in fact the
fortunes of the company have likely been rising for sometime and the
dividend is an end product, not a beginning. so with dividend
initiation, a few things happen that may restrict the zealousness of
the joy. first, many who appreciated the company's efforts and wished
to participate are already doing so. therefore the dividend does not
radically alter the demand factor. also that demand factor may be
distributed over a time frame as followers anticipate the dividend and
take positions in advance of the announcement. further the dividend
itself while nice may not be significant in amount to create demand. a
one or two cent distribution on a sixty dollar stock isn't going to
attract income buyers. at the same time that one cent may deter growth
buyers. dividends are not always considered the best use of corporate
funds. especially in the case of true growth companies. the investor
class would often rather see those funds being redistributed back into
a business growing at say, 20 per cent per annum, rather than have the
small check in their hands. therefore in some cases and with some
classes of shareholders the initiation of a dividend is not viewed
warmly but rather can be taken as a sign that the company can no
longer invest those assets at the same favorable growth rates as
before and take that as a sign of slowing of growth. hence no real
need to generate new demand.
on the sell side, while rumors of dividend deletions are usually
floating around the street for a while prior and while an interested
party should be aware of the less than robust financial performance,
still in all, deletions are usually and in most cases, a loud and
clear message, to even the most dedicated holders that things aren't
going all that well. the final realization that the check will not be
in the mail does, all by itself, create sell side activity. in fact
there are many holders who own primarily for the cash flow who will be
immediately provoked to exit the shares when there is no cash flow. |
