scroll to top
Stuck on your essay?
Get ideas from this essay and see how your work stacks up
Word Count: 1,856
What drives firms to pay dividends Advantages and disadvantages Dividends are set by the firms board of directors and can come in the form of cash or stock dividends Instead of retaining earnings for expansion or investment in growth opportunities the profits of the firm are converted into dividends for the shareholders This means that high payout ratios are often paid by mature companies with limited opportunities for more growth while zero to low payout ratios are paid by younger firms that are expanding and investing This ratio can be found by dividing the number of dividends by the net income Dividends can also be classified as ordinary paid on a regular basis or extraordinary paid out as a one time occurrence without commitment While these dividends can come in cash form they can also be offered as stock dividends This type of dividend however can lead to dilution of equity and a reduction of value per share A stock dividend is recorded as a transaction from retained earnings to equity capital Repurchase of stock is yet another form the firm repurchases its own stock which unlike dividends is only taxed on the capital gains of the shareholders This one time event also allows the company to put cash back in the hands of investors without making a long term commitment Dividends also help to provide confidence in the company financial well being The dividend policy can provide investors with a signal regarding the firm if dividends are increased for example it can be seen as a signal that management is confident in future cash flows and believes the increased dividend can be sustained On the other hand if dividends are cut it can be seen as a decrease in the firms quality and lead to a decline in share prices Taking this information into consideration there are three schools of thought that argue for or against dividends rightists leftists or the middle of
@Kibin is a lifesaver for my essay right now!!
- Sandra Slivka, student @ UC Berkeley
Wow, this is the best essay help I've ever received!
- Camvu Pham, student @ U of M
If I'd known about @Kibin in college, I would have gotten much more sleep
- Jen Soust, alumni @ UCLA