While it manifests itself immediately as a shift from

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Unformatted text preview: safety that occurs across all markets. While it manifests itself immediately as a shift from stocks to government bonds, it also shows up within equity markets as investors shift from higher risk stocks (often high growth companies that pay no or little dividends) to low risk stocks (often stable companies that pay high dividends). 15 These sales pitches have the most appeal to investors who are not only risk averse but also count on their portfolios to deliver a steady stream of income. It should come as no surprise that older investors, often retired, are the most receptive audience. The Theory: Dividends and Value Can paying more in dividends make a company a more attractive investment? There is a surprising degree of disagreement about the answer to this question in corporate financial theory. One of the most widely circulated propositions in corporate finance – the Miller-Modigliani theorem – states that dividends are neutral and cannot affect returns.1 How, you might wonder, is this possible? When a company pays more in dividends every year, say 4% of the stock price rather than the 2% it pays currentl...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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