The relationship between dividend- and non-dividend-paying stock prices when considering financial distress

Previous studies on whether dividend policies affect stock prices have offered contradictory results. This study investigates whether dividend-paying stock prices outperform non-dividend-paying stocks and whether there is a strong relationship between dividends and stock prices. It also examines the financial health of dividend-paying firms vs. non-dividend-paying firms. The empirical results show that there is a strong relationship between share prices and dividends. The Altman financial stress test shows that the average Z-scores of non-dividend-paying stocks are higher and are more volatile than dividend-paying companies. The Z-score test strongly rejects the hypothesis that dividend- and non-dividend-paying firms are equally exposed to financial risks. Contrary to some beliefs, the results of this study show that dividends are an important factor in determining stock prices and dividend-paying stock prices are less volatile than non-dividend-paying stocks.