When a company makes a profit (of course after payment of all its expenses), it can either reinvest that profit into the business or distribute it among its shareholders in the form of dividends. Dividends are thus a part of the company’s profit that is paid out to the shareholders of the company to acknowledge them for their investments in the company’s business.

A typical investor in the share market usually perceives the price of a company share to determine the company’s performance. Thus if the share price of a company moves up it is taken that the company is performing well and if it goes down it is taken as a bag signal with respect to the company’s performance. In the similar manner, increase in the value of dividend payment by a company to its shareholders sends a positive signal to the latter with respect to the company’s performance thus leading to an increase in the share price of the company (as a result of increase in demand for share), while on the contrary a decrease in the value of the dividend payment sends a negative signal to the investor market thus causing a fall in the share price.

However, change in the share price of a company may not be solely due to the change inn the value of dividend payments or may not be due to change in dividends at all but rather due to certain other factors.

Let us first discuss the factors that impact the share price of a company. A company’s value i.e. its share price may be, broadly, affected by changes in factors such as economic upturn or down turn, market performances and profit incurred.

An Economic Change
When an economy is booming, it sends positive signals to the investor market who perceive the companies to perform better at such times, causing the demand for the company’s share to increase more than its supply in the market and thus in turn causing an increase in the company’s share price and vice versa.

Market Performance
Under normal market conditions, if a company is performing extremely well, again, investors would want to invest in such a company causing demand for its shares to surpass their supply and thus increasing the company’s value (its share price) in the market. The contrary would happen in case the company under performs in normal circumstances.

Profit Incurred
When a company earns huge profits it may decide to distribute some of it in the form of dividends to its shareholders. Now once a company starts paying dividends on a regular basis to its shareholders, it may hesitate to hold its payment for any period (for eg. even if it is incurring a loss) perceiving that such an action would usually send negative signals about the company in the market and thus would prevent a decline it its share price.
However, a cut in dividend payments should not always be perceived as negative company performance, on the contrary it can be possible that a company initiates a dividend cut as it requires more capital to invest in opportunities profitable to its business. Similarly an increase in dividend payment may not necessarily mean a good company performance, as it may be possible that the company has decided to increase value of dividend payment since it currently does not have any opportunity in the market where it can invest its excess capital (that is otherwise lying unused).
As you might notice, in the two factors above, an increase or decrease in share price rather share price movements have resulted from changes in economy and performance and the notion of dividend has not even come in the picture. Thus we can clearly say that although change in the value of dividend payment may initiate share price movement it may not always be the case and the initiator of share price movement may be some factor in addition to dividend or may be completely be a different factor altogether.