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sir i cant get the concept that how come growth in profits doesnt always mean growth in share price? what are the factors that cause this variation? and what are the contributors of dividend signalling
The share price depends on shareholders expectations of future dividends.
Certainly growth in profits will lead to growth in dividends in the long-term, but just because profits grew in the past does not mean that shareholders will be expecting the to grow in the future.
With regard to signalling, what it means is that if a company announces a lower dividend, shareholders are likely to think that the company has problems and therefore they are likely to reduce the share price. In fact, it might simply be that the dividend is lower because the company has done a lot of investing in new assets which will actually improve things in the future.I do suggest that you read Chapter 6 of our free lecture notes.
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