Dividends question?

Question

why some companies forgo dividends?

Why other strive or continue to pay dividends?

thanks

Answer 1

It is too professional to me. companies are different, some bosses like to play dividends, other don't.

Answer 2

Large companies do not like to cut of forego dividends as it effects shareholder confidence. If the profits are well down then they may have no choice. You should look to see what the dividend cover is. I.e. The current dividend may be covered three times (by the earnings per share). If the following years profit is nil or well down there is enough money in the kitty to pay the same dividend

Answer 3

because of Investor expectations.

if company is able to invest the profit in the business , and can get return higher than that of what an investor return will get , the company not pay dividend.

otherwise pays.

Microsoft never paid dividends !!!!

Answer 4

Actually, several years ago, MSFT started paying dividend.  Current yield at 1.74%

Like prior answer, if a company think they can do a better job investing the money than you can, they will not pay dividend.  That is why many young/tech companies do not pay dividend.  They believe they can make investment that will have great return for their business.

If they run out of such opportunities, they will start paying dividends.  Such as the case with microsoft.  This is a sign that the company is maturing.  

Companies also hestiate to pay dividends to begin with because once you start, it's hard to stop.  Because, you need money to pay dividend.  If you stop paying dividends once you have a history of it, or if you lower the amount of dividend, that's a sign that you are foreseening profitability problem.  You can't afford to pay dividend.

Which brings me to the most basic point:  some companies simply are not profitable.  e.g. one wouldn't expect a company like Evergreen Solar to pay dividends anytime soon.  First of all, they are actually still in the losing money phrase of business.  Second, you would imagine that they will have a lot of opportunities to reinvest into the business far into the future.

Answer 5

Rationally, if a company believes it can produce a higher than average ROI with your cash, they will issue lower dividends (or none). If they don't believe that they can do that they should return excess cash to the owners via dividends.

There are other reasons to pay dividends. Dividends are a sure sign of company health. You can't fake a dividend. Companies that pay secure dividends tend to trade at a premium in the market.