Managerial Finance: Value of a Share Stock and Dividends

Managerial Finance
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Managerial Finance
How does the value of a share of stock relate to dividends?
Dividends refer to income paid to shareholders by corporations for every stock they hold. In particular, they affect the value and price of stocks. For instance, in the short run, the value of stocks declines when dividends are paid. Companies give dividends to shareholders based on the number of shares they hold. The more shares that one has with a specific firm, the more dividends they are likely to receive if the said corporation makes more profits. On that note, dividends’ values are deducted from the retained earnings. A cash dividend reduces shareholders’ retained earnings or equity. In some cases, investors might be unwilling to take cash dividends. When this happens, the dividends are reinvested in the company, increasing the value of stock that shareholders have in the firm (Musallam, 2018). Consequently, the value of shares of stock relates to dividends since all of them contribute to shareholders’ retained earnings.
Many corporations do not pay dividends, why are investors willing to ...