Dividend payouts are one of the two ways that stock investors are compensated for their investments in the stock market. As such, changes in dividends are extremely important to investors. Financial literature has shown that a decrease in dividend payouts on a dividend per share basis have a negative impact that is solely explainable by the decrease in expected future cash flows. Decreasing dividends is a negative signal to the market.
D.C. Ducks is a tour company whose revenues depend heavily on favorable weather conditions, such as air quality. On days when the air quality index (AQI) is above 50, the firm has fewer customers due to the adverse conditions. The firm currently purchases a blanket weather insurance policy for the entire year, as protection against days when the AQI is forecast to be above 50.