How is the dividend yield determined? Dividends are voluntary. Not every company pays dividends. What are...

How is the dividend yield determined? Dividends are voluntary. Not every company pays dividends. What are some advantages or disadvantages of investing in companies that pay dividends? Would you invest in a company that does not pay dividends? Please explain.

Expert Solution

Dividend yield=(dividend paid / current market price)

Dividend yield will be determined upon the profits of the company and the expectation of the shareholders and the growth prospect of company as well

I will be investing in the company which are even not paying dividend because these company are reinvesting their profits back into the business and it will mean that these companies are trying to accumulate more growth because they do not believe in distribution of the income as they feel that they can grow with the higher pace by reinvesting their profits back into the business, and hence it can be said that these businesses can be explored and invested into, because they are believing upon themselves ability to grow by investing their cash back into the business and it will mean that these businesses will be increasing the shareholders worth by increasing the overall capital appreciation so they can lead to increase in the profits and this profits will be getting discounted into the share price so shareholders will be gaining in front of higher appreciation of their investment and I will be investing into those companies even who are not paying dividend.

jeff jeffy answered 2 years ago

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