The stock price is what people think a company is worth, this is made up of
- Money the company has in the bank.
- Building and stock the company owns
- Skills of the staff of the company
- How people expect the above to change over the next few years.
When a company pays out a dividend the money in the company’s bank account reduces, therefore the value of the company reduces.
When a company says they are going to pay a larger dividend than expected, we start to expect they are going to make more profit next year as well.
So stock price tends to go up when a company says it is increasing the dividend, but down on the day then money leaves the companies bank account. There is normally many months between the two events.