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SecondCor521 · 05-09-2008, 04:35 PM

This is an interesting reprise of part of my MBA finance class.

Paying dividends restrains corporate management in two ways -- they can't waste the money on lousy investments, and it may restrain any "cash flow risky" investments because they have to make sure the dividend gets paid.

Another thing that mgmt sometimes considers is whether a dividend has been paid for a while. If so, the company may have attracted a shareholder clientele which wants to be paid dividends and would get peeved if it were cut or eliminated.

There is also interesting interplays between dividends and share price. If a company changes dividend policy that can get interpreted by Wall Street to mean different things. Adding a dividend, for example, may lead the Street to think that the company's growth rate will be slowing.

I'd have to dig out my notes for the rest of it, but it's a complicated subject.

2Cor521

05-09-2008, 04:35 PM	#17
SecondCor521 Thinks s/he gets paid by the post Join Date: Jun 2006 Location: Boise Posts: 1,489	This is an interesting reprise of part of my MBA finance class. Paying dividends restrains corporate management in two ways -- they can't waste the money on lousy investments, and it may restrain any "cash flow risky" investments because they have to make sure the dividend gets paid. Another thing that mgmt sometimes considers is whether a dividend has been paid for a while. If so, the company may have attracted a shareholder clientele which wants to be paid dividends and would get peeved if it were cut or eliminated. There is also interesting interplays between dividends and share price. If a company changes dividend policy that can get interpreted by Wall Street to mean different things. Adding a dividend, for example, may lead the Street to think that the company's growth rate will be slowing. I'd have to dig out my notes for the rest of it, but it's a complicated subject. 2Cor521 __________________ "At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.