Shares in the AA fell almost 30 per cent after the breakdown cover provider slashed its dividend and warned of lower profits as it embarks on a technology drive. The company laid out a three-year plan to increase its use of vehicle-monitoring systems to spot breakdowns pre-emptively and expand its insurance business. It will spend an extra £45m this year in both operational and capital spending, as well as another £54m over the next two years, specifically developing new services.

1. Explain why investors often see a cut in a company’s dividend payment as a negative signal. 

2. If a company is planning a cut in its dividend, how should it go about this?