1.) Clientele Effect
There are many groups of investors within the market that prefer different payout ratios. Investors often look for a company in which maintains a payout ratio similar to their preferences. If a company decides to change their dividend policy or their payout ratio due to strategy decisions their shareholders or “clientele” might decide to sell their shares in that company and invest in another. If enough new shareholders are not in line to replace these old shareholders, the stock price may drop. On the other hand, if there is a newfound demand for this dividend payout more shareholders may want this stock than previously and the stock price may increase.