Why does a company choose to provide an extremely high dividend (10%+)? Is that just a...

Why does a company choose to provide an extremely high dividend (10%+)? Is that just a way to attract investors?

Expert Solution

The company is choosing to provide an extremely high dividend (greater than 10) in order to attract more investors so that no of investors increases leads to increase in demand of stock of the company which ultimately increase the market capitalisation of the company. Also, company who has in stable growth phase then in stable growth phase, company has more capital than they require the fund for investment. Means they have extra profit then they require to invest for further future growth. For example, IT company shares, they are usually pay high dividend because they have high margin along with that they only require one time investment in infrastructure and computer hardware after that they don't require to invest in further so they have high cash in the account which ustimately lead to disbursement of profit in term of high payout dividend ratio. So, there are various other reason such as to show the investor that company is making high profit, to hide certain mischievement activities which compulsate to pay out high dividend etc.

No, to pay high dividend is not only way to attract investors but it is one of the way. The other way is to inform the investor about their investment, growth plan and profitability of the business which attract the investors and various other reason by which investor can be attracted such as profile and past for board of director of the company etc. For example if the Warren buffett is angel investor in new startup then a lot of investor will attract.

jeff jeffy answered 2 years ago

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