Dividend Payout

Firms’ Earnings Shouldn’t Be All Used As Dividend Payout

1.0 Introduction

A dividend is termed as a portion of a firm’s earnings that is returned to its shareholders. Dividends offer a further motif for investors to hold or even increase their investments. A lot of companies, mature or young, large or small, pay stable dividend. It is true that high dividend yield is important for current investors because it indicates, to some degree, a firm’s financial well being, but paying 100% of its earnings as dividend is not financially wise. Instead of paying dividends, fluid cash is quite essential for a company’s current operation, growth and expansion. Besides, dividend paying is no longer the only criterion for investors to evaluate one firm’s financial health. In this essay, arguments against paying 100% of its earnings as dividend will be carried out from two different perspectives mentioned above. And a conclusion will be generated.

2.0 The Limited Necessity of Dividend Payout

Admittedly, a high dividend yield makes a lot of investment sense to investors due to the certainty of a company’s financial performance it supplies. Investors are always seeking secured current income and dividend payout can be quite attractive in that way. A dividend payout’s up and downs can delicately affect a company’s stock price (Allen, 2002). Historically speaking, companies that possess long-term history of stable dividend distribution would be valued down while lowering or neglecting dividend distribution. On the other hand, increasing dividend payout or making extra distribution of dividends can be quite helpful for some companies’ financial performance index, well being appearance and attractiveness in the market (Liu, 2008). However, paying 100 percent of its earnings as dividend is not wise for two following major reasons.

3.0 Paying 100% of Earnings as Dividend is not Wise

* Cash Liquidity is More Important

First of all, paying dividends to shareholders is...