Why do companies pay dividends when they can use that capital to invest in long term growth?

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Does that then not tell you they don’t have an interesting project to invest in?

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Mgmt could distribute cash to placate shareholders at the expense of investing in long term growth. I don’t think it’s mutually exclusive

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OP, there are many reasons. From the simple - many investors and funds only invest in companies that pay dividends, to much more complex.

There is a cost of capital set of calculations that is used to balance potential projects and potential funding methods. Retained is not always optimal. Proper usage of equity, bonds, short term debt, revolving debt and the cost of each is not intuitively obvious.

And always keep in mind, the profits are for the owners of the firm. Dividends and share buy-backs are two of the ways the owners are paid.

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Thanks MD, the last point was especially helpful

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Oh OP. You have a lot to learn about capital allocation.

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Well that’s why I’m asking the question…

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A) they make enough to do both
B) they no longer have growth opportunities that align to their core competencies

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funnylike

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