Why or why not would a company pay dividends to shareholders?
Best Answer
4085 points
EthanR answered one year ago …
Many companies pay a dividend out of their total earnings, as an incentive to shareholders to buy their company stock. The dividend makes that company more attractive. Often it is a company that is about steady earnings, but not about rapid growth. Usually it is the plodding turtle, not the hare. Real Estate Investment Trusts, or REIT's for short, are mandated to return 90% of their assets to shareholders, and so their dividend yields tend to be quite good.
Examples of companies that pay a dividend are:
Large DOW stocks like C, MO, PFE, GE
REIT's, like SPG, DRE,BDN, or SNH.
Utility companies like ED, PGN, TEG, and EAS
Dividends can increase the total return of these kinds of stocks, and can act as a hedge when the market falls. If one buys dividend paying stocks after a market correction, the yields become very attractive. If the company is still doing ok, they should continue to pay out the same dividend, but the yield to the buyer goes up. It is only when a company is doing poorly, such as Citigroup was, that they will cut the dividend when the dividend yield becomes very high.
Not all stocks pay a dividend. Many growth companies prefer to reinvest their earnings into the business. The total return is what is important, whether it comes from the appreciation of the stock price through increasing earnings, or a smaller appreciation rate plus a dividend.
Answers
989 points
rvilmur answered one year ago …
When a company can pay dividends without borrowing money then the company earnings are real and not accounting magic. The cash flow is there and the cash is in the bank and can be used to reinvest in the business or to reward the stockholders.
If the company has the majority of its holders as founders and management, they can decide to concentrate on growing the stock price and pay little or no dividends to grow their fortune without paying a lot of taxes. So, most high dividend companies have well distributed stock.
Dividend increases are a very positive sign that the company is doing well; so invest in companies that report increasing cash flow and increase their dividends regularly.
Some of my best capital gains have come from high dividend paying companies; and as Ethan says above buy on stock price dips when there is blood running in the streets.
3963 points
MNSL answered one year ago …
Some long term intelligent investors prefer reinvestment of earnings in the company than declaring dividend. Because they say it make value for their shares in the future and they like to see growth in their company. However some argue there should be dividend in addition to long term growth.
However situation like today we need dividend oriented stocks. If you do research there are companies with higher divided yields through out the world. In some companies we can get more than 20% dividend. If we just take that 20% now and keep till the market recover we can get next 20% dividend plus capital gain within short period. In this situation sometimes we can make more profits than just investing in growth company.
According to the situation sometimes it is better to keep high yield dividend stocks in our portfolio. Especially small investors should take advantage in every market situation to take above average return in the long run and also to be a winner in the future by facing successfully in bad times and good times. Therefore it is always better to identify excellent dividend companies with potential for capital gain. There are no unnecessary risks in dividend oriented companies.
My preferred dividend oriented companies includes following:
Positive cash flow
No debt or less debt
Room for expansion and market growth
Innovative ideas
More capital gain in the future
There is no room for bankruptcy at least for next 05 years.
Continuous earnings (profit) and turnover growth.
Actually there are some companies even though they declare dividend every year they still grow faster than so called growth company that reinvest their earnings without declaring dividend.
