What would the advantages of initiating cash dividends be to Apple, if it chooses to do...

What would the advantages of initiating cash dividends be to Apple, if it chooses to do so?

Expert Solution

Advantages of intiating cash dividends to Apple are as follows:

1. Creating a "Positive image" for the company: A company with a good dividend-payout ratio provides more certainity about the financial health and well-being of the company. Dividends are usually interpreted as management having good expectations out of the company's future and are much appreicated by the general public and investors.

2. Attracts Investors: Investors are always looking for a source which while appreciating its capital value also provides them with a regular source of income. Hence a company which has been paying dividends constantly over the years is much more attractive to the investors.

3. Increase in the Stock price: While there is an argument with this regards that a company paying dividends is not retaining enough for their future growth and a lot of financial models assume that the stock price of a company declaring dividends goes down, however, at the same time, issuing dividends increases the demand of the stock in the market which inturn increases the stock price as well.

4. Show of financial strenght of the company: Cash dividends are a clear demonstration of the conifdence of the management of the company in the future prospects of the company. It sends out a clear message to the public and their competition that they have enough earnings to both pay dividends and take care of their future projects.

ekkarill92 answered 2 years ago

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