Red Dirt Producers Inc. is an oil drilling company. The company paid a dividend of $$3\mathrm{.}10$ last year, and, in the past, its dividend has increased steadily by about $4\%$ a year. Red Dirt just announced that its dividend will increase to $$4\mathrm{.}20$ this year, and its share price rose from $$38$ per share to $$40$ per share immediately after the announcement.

Which of the following best explains why Red Dirt$$s stock price increased as it did?

The clientele effect

The signaling hypothesis

Dividend irrelevance theory