Question

Should passive funds invest in companies with high dividend payout ratios or low dividend payout ratios (Minimum 1 page response)

Answer 1

Passive investment funds should be investing into companies who are paying out higher amount of dividend because those company who are used to payout higher amount of dividend will be matured companies who does not have much risk taking appetite and they are preferring to distribute their profits to the shareholders rather than investing those profits back into the various products which can Yield them with high rate of return.

These passive investment funds should be investing into high payout companies because it will provide them with less fluctuation of the return because these companies are distributing most of their profits and these company will be less prone to being exposed to the market risk because they are not enough investing into the new projects, and taking more risk so it can be overall summed up that those companies who are paying up with the highest dividend are more mature companies, and they are not reinvesting into their own business so they are taking lesser risk exposure and a passive investment fund is known for taking low risk and hence they should be investing into those companies who are having high dividend payout ratio.