Question

Are there any instances in which companies should not pay dividends?

Answer 1

When a business pays dividends it is returning the earnings tothe shareholders. By NOT paying dividends the business may reinvest the money into business. A new and growing company may consider this route especially if an opportunity to grow in the market is available. Not seizing the opportunity may lead to slow growth and possibility that it can not seize key opportunities at crucial times. A business need not be new however to decline payment of dividends. Even huge corporations like GE can decide to hold back on  paying of dividends for a year if it feels there are opportunities to grow in the market. Since dividends are taxable, this can be an incentive for shareholders to reinvest the money.

When a company chooses to reinvest the money back into the company, they may consider issuing new stock.

Siince dividend are paid out of reserves, a company in situation of losses may not pay the dividend as dividend payment is a part of Profit and loss appropriation.