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This paper investigates the determinants of the dividend decision. We examine the impact of fundamental variables like earnings, size, or leverage, as well as the e¤ect of stock price movements. Using a sample of German companies, we …nd a negative relation between the probability for dividend increases and the performance of the …rm's shares. Dividend increasing companies performed worse than the overall stock market or corporations that keep dividends constant. In addition, we demonstrate that the documented pattern cannot be explained by models of asymmetric information or catering considerations. Thus, our results suggest that in Germany, where share repurchases were highly restricted, dividends are increased as a compensation for the poor returns of the current shareholders.JEL classi…cation: G35