Why do some companies give out dividends and some do not?

Question

I have noticd even high profit companies dont give out divdends and some do..or vise versa, a low profit will give out nice dividends......why does a company not choose to do dividends and is it possible the could start doing it? Does that ever happen?

Answer 1

Some companies choose to reinvest their profits to make their company grow. Companies that do not give out dividend can and do start giving them out, either as special dividends or regular dividends. Just a little while ago, Microsoft gave out a huge dividend as a one-time deal. If a company does not give out dividends, you make your money when you sell the stock. Any retained earnings should increase the value of the stock.

Answer 2

The biggest reason why a company will not pay a dividend is that they are not making a profit. Dividends are a part of the profits that a company earns which is then paid back to stockholders. So if the company isn't making a steady profit, it probably needs every penny that it gets.

Some companies issue dividends when they have some extra ordinary income or the corporate directors want to supplement their income. Microsoft, for instance, was terrible in the dividend department until Bill Gates wanted to extract a pile of the unused profits just sitting around in the Microsoft accounts and used it to fund some projects for his foundation. Of course, everyone else who had shares got the same piece of that pie, proportionally.

When a company becomes a going concern and is regularly making profits, to spin off a piece of the profits puts them into a different group of investors. Speculators (traders) are not interested in dividends (except for possible periodic trends such as the rise of prices before the dividend cut-off date arrives, followed by a drop once you are ex-dividend. Big price swings are sometimes sexy, but a dividend stock usually has a much lower beta. Think of it as distinguishing between a fast sports car, which can be a lot of fun, and "your father's oldsmobile", which just grinds along as a monotonous money machine. BTW, some people still do some fun trading with high dividend stocks by betting on earnings announcements.

Answer 3

There is a perception, perhaps misperceived, that companies that do not pay dividends are "growth companies". Indeed some are. Instead of paying dividends, they believe that the money is better spent reinvested in the company. However, for many companies, they wish to be perceived as a growth company so they do not pay dividends. They instead waste their shareholders' money buying back the company stock, usually at inflated prices in an attempt to support the stock price. Dell for instance wasted over $10 billion of shareholders money buying back their overpriced stock.

Answer 4

ok, i've got finished sufficient domicile artwork this week.!! a corporation has relatively 2 styles of shareholder, prefernce and easy. determination get a dividend in line with annum at a series a cost and it relatively is deferred, yet any non-fee has to circulate as a creditor (debt to the comapany) and corrected. basic shareholders at the instant are not immediately given dividends. It relies upon on the revenue of the corporation, and what they acquire is variable. the only different loosley termed holder is a debenture holder who get fixed fee no remember what. determination shareholders after debenture holders are paid until now basic shareholders.

Answer 5

Some companies reinvest their profits.