Dividend Case Study

Changes in dividend provide a signal to the market regarding the expected future performance of the company’

Companies are set up to meet set objectives which are both economic and social. Financial management achieves its goal by maximizing the wealth of shareholders; maximizing the value of the company by measure of the stock price and rewarding them with investment income known as a dividend to further spur investments. Dividends are usually paid out at the end of the financial year to investors from the retained earnings as determined by the dividend policy. It is generally accepted that a dividend announcement affects the stock price around the announcement day, that the announcement of unanticipated dividend changes by the management

DEUTSCHE BANK

Deutsche Bank is facing questions about whether it can afford a penalty of $14bn (£10.5bn) from the US Department of Justice for mis-selling mortgage bonds a decade ago. Shares in Germany’s biggest bank have sunk to a 30 year low and are trading just above €10 a share, illustrating investors’ concerns that they will be asked to bolster the institution’s coffers through a cash call. The bank has put strategies in place that will see a turnaround in the performance of the bank by proposing to cut jobs and dividends. This announcement has led to a further drop in the share price by 7%.

The dividend cut announcement for the next 2 years shows that the company is in greater trouble than what the management is presenting. Analysts have insinuated severally that the bank will need to be bailed out by the German government due to the extent of the financial mess they are in.

The share price of Deutsche Bank has dropped significantly from a high of $30 to a low of $11.It should, however, be noted that the price drop has not entirely been based on the dividend cut but other issues that the company is