Michael
Elite member
- Nov 19, 1999
- 5,435
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In general, dividend payouts are from companies that generate more cash than they can use to invest in their business. There are tons of examples of businesses to do that. Reinvestment is not in particular an option.
It is management's way of giving the shareholders a choice on what to do with the cash. Instead of sitting on a balance sheet and giving a low valuation as an asset (cash is worth the amount of cash it is), it gives the investors a chance to make their own choices on what to do with the cash.
It also is a sign that the company expects the current good news to continue into the future, that earning are expected to be enough to cover the dividend. Maintaining the dividend can enforce a certain amount of discipline on the company.
There certainly will be instances in every companies life when there is an opportunity to more profitably reinvest the cash rather than pay a dividend, but in the long run maintaining the dividend was deemed to be important.
Most studies show that, on average, dividend paying stocks give a higher return to their shareholders. In many ways, stock prices reflect the overall market. Pay or not pay, if there is a bear market there is a high chance that the stock will go down. At least the shareholders make income from dividends.
Dividends are also the traditional way of sharing the corporation's profits with its shareholders without the shareholder having to make a sell decision.
Compared to interest, receiving dividends is tax advantaged at the moment.
Michael
It is management's way of giving the shareholders a choice on what to do with the cash. Instead of sitting on a balance sheet and giving a low valuation as an asset (cash is worth the amount of cash it is), it gives the investors a chance to make their own choices on what to do with the cash.
It also is a sign that the company expects the current good news to continue into the future, that earning are expected to be enough to cover the dividend. Maintaining the dividend can enforce a certain amount of discipline on the company.
There certainly will be instances in every companies life when there is an opportunity to more profitably reinvest the cash rather than pay a dividend, but in the long run maintaining the dividend was deemed to be important.
Most studies show that, on average, dividend paying stocks give a higher return to their shareholders. In many ways, stock prices reflect the overall market. Pay or not pay, if there is a bear market there is a high chance that the stock will go down. At least the shareholders make income from dividends.
Dividends are also the traditional way of sharing the corporation's profits with its shareholders without the shareholder having to make a sell decision.
Compared to interest, receiving dividends is tax advantaged at the moment.
Michael
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