Companies have very different policies regarding dividend payments. It ranges from no dividends up to dividend payments that exceed the profit of the company. Let’s have a look at the different kinds:
No dividends:
Especially in the technology sector, some companies believe they are better in re-investing the profits than their shareholders. Even if they are highly profitable and could afford to return money to their investors, they don’t. An extreme example is Apple, which has accumulated some 100 billion Dollar on ist accounts. Finally, Apple has decided to pay out dividends in the coming years.
Very high dividends:
Several major Telecom providers that have been privatezed in the last 15 years or so have very high dividend yields. This measure is taken to make the stock more attractive to investors and is a relict from the privatisation. Unfortunately, this is often the only atractive fact about these companies. Decreasing profits, high cost of a too large workforce and no outlook on growth opportunities or innovations make these stocks unattractive. Over the long run, the dividends will eat up the substance of the company.
Low but steady dividend:
This category contains propably the majority of all companies. A low dividend can be a very healthy way to spend the profit. It also makes the pricing of the stock easier and forces the management to operate their business in a more steady way. Wheather the stock is interesting or not depends mostly on other factors than the amount of the dividend in this category. However, the rate of increase of profits and dividend are an interesting factor fort he long-term investor. Apple for example is moving into this category as their profit exceeds the money that can be reasonably re-invested in new products and older products generate huge profits.
Dividends and growth
Jun 9, 2012