Dividend Irrelevance Theory: Definition and Investing Strategies

Today, we will talk about dividend irrelevance theory, which posits that dividends don’t have any effect on a company’s stock price. It suggests that a company’s payment of dividends should have little to no impact on the stock price. This theory holds that the markets perform efficiently so that any dividend payout will lead to a decline in the stock price by the amount of the dividend. Dividend irrelevance theory also suggests that companies can hurt their financial well-being by issuing dividends. Despite this theory, many investors focus on dividends when managing their portfolios. And finally, companies pay dividends as a way to share profits with shareholders.
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