Question

Dividend payment :Why the company have to pay the Divident ?

What are the raisons (rational) they pay in the Dividend?

Answer 1

Dividends are a part of company's earnings which is distributed to its shareholders either, as cash or stock. These are considered to increase shareholder wealth. There are various types of investors and some investors want to invest in stocks which pay regular income to them. Since, dividend is a regular form of income to them, the stock becomes attractive to these investors. This eventually increases the attractiveness of the company. Dividends are usually paid by big and mature companies whose main aim is to create shareholder value. Also, there are some big companies who have huge earnings with little growth investments, hence they try to distribute their earnings to increase investors confidence in their stock. Example of some big players in the market with high dividend payout are Apple (AAPL), Microsoft (MCST), Procter & Gamble (PG).

Moreover, dividend payment shows a sign of strength for the company and investors expect that the earnings for the company would increase in the future which further boosts stock's demand in the market pushing the stock price higher.