Steady Streams Company went public a month ago. Its owner, Winnie McAbby, briefly learned about the signalling effects f dividends and of maintaining a consistent payout history. Accordingly, she is contemplating whether or not she should declare a dividend. If the dividend is declared, it is unlikely she will be able to abruptly cease dividends without share price ramifications. In light of this dilemma, she has approached you for advice on what course of action to take. Specifically, she wants clarification on the following:
a. What are the dividend signals Winnie is describing?
b. Given that her company is young, what are other factors to consider before deciding to pay dividends?
c. Following the life cycle hypothesis, what should Winnie do?