Question

1. tax A paying investor would generally prefer a high dividend paying stock or a low dividend paying stock, all else the same (i.e. all else the same implies the low dividend stock reinvests the dividend that the high paying firm pays and thus creates capital gains)?

Answer 1

High dividend-paying stocks are at low risk as they are paid off at the end of the year. ... Investors having lower risk profile would prefer going for the high dividend-paying stocks. They would like to avoid paying taxes against dividends and may go for capital gains against the share prices

In the past, many associated growth companies with non-dividend-paying stocks because their expansion expenses were close to or exceeded their net earnings. That is no longer the rule in today's modern market. Other firms have decided not to pay dividends under the principle that their reinvestment strategies will—through stock price appreciation—lead to greater returns for the investor.

Thus, investors who buy stocks that do not pay dividends prefer to see these companies reinvest their earnings to fund other projects. They hope these internal investments will yield higher returns via a rising stock price. Smaller companies are more likely to pursue these strategies. However, some large caps also decided not to pay dividends in the hopes that management can provide greater returns to shareholders through reinvestment.

A non-dividend paying company may also choose to use net profits to repurchase its shares in the open market in a share buyback.

Finally, there is book value. An unprofitable company with lots of assets may be priced below book value. When prestigious firms with long histories fall below their book values, they often rebound spectacularly.

So it is better for the tax paying investor to go for the all else the same