2 reason why a low dividend payout might be preferred:
- Funding growth through retained earnings: Dividend which is
paid from retained earnigs can be reduced and this amount can be
used for future investments of the company. Such critical
investments can give the much needed capital appreciation of stock
value which ultimately benefit shareholders.
- Unexpected financial trouble: Equity savings capital due to low
dividend payout can act as a buffer for the company during its
severe cash crunch, liquidity issues etc.
2 reasons why a high dividend payout preferred:
- Shareholders are protected: high dividend protects the share
holders from any significant price drops of the stock and is a
constant stream of income
- Consistently dividend payment signifies stability of the
company: Many investors who are conservative prefers a company
which pay consistent highe dividend payout compared to random
dividend paying companies. Also high dividend increase the market
value of the company as investors are attracted due to the
prospective dividend yield