Dividends

When it comes to shares-related issues, dividend is one of the important aspects that investors are keen on. It is not how much of dividend they would receive. Investors mostly acknowledge that company does not compulsorily pay dividends to ordinary shareholders. What they are principally concerned about is company’s dividend policy (Modigliani & Millar, 1961). It is also approved that the amount of dividend paid to shareholders does not reflect shareholders’ value.

There are some ways company can spend its profits on. In majority, profits are retained to invest in business projects rather than distribute to shareholders. Investing is how company enlarge operating profits which is in accordance with maximizing shareholders’ wealth. When profits exceed investment funds, the remaining can be recorded as dividends. Inversely, if what company earns cannot cover the costs of planned projects which are believed to potentially create high returns, it is advised to use profits as well as borrow money to invest instead of paying dividends to shareholders. The former is properly more risky, but it is more strategic as well. This is what most big investors are looking for. Indeed, the fact shows that almost every stock investor is more likely to care about how much company’s shares are worth than how much company pays to them or whether company pays them regularly.

On the other hands, it is not favourable if company always use investments as excuse to ignore shareholders’ dividends. Since investing aims at accumulating profits, company should show the accomplishments to create belief. In personal point of view, it is not important to show business prosperity by recording high dividends amount, but presenting rational strategic plans of how to make use of profits.