The lecture on September 25th briefly addressed the stock market, why investors would want to give money up for shares, and why companies do or do not pay dividends to their shareholders. A recent article regarding Canadian companies offering increased dividends offers some insight into why certain corporations would want to pay dividends.
The primary reason that a company would offer a payout is to attract more investors to buy its shares. Stocks which offer a dividend provide much lower risk to their holders than those which do not. This is particularly appealing to investors who are “in or approaching retirement” (Reuters) as they may not have the financial security needed for such risks. Raising the size of the dividend also shows the market that the company is stable and powerful enough to survive most economic turmoil.
Another reason a company may look to give out dividends is to please its investors when it is pressured by them to do so. If a company has a large sum of cash, and few threats or opportunities in the foreseeable future, its investors will become restless and question why the money is not being invested into research and development, expansion, or another venture which would help profits.
Works Cited
McGugan, Ian. “The Globe and Mail.” The Globe and Mail. Globe Investor, 23 Aug. 2012. Web. 29 Sept.
2012. <http://www.theglobeandmail.com/globe-investor/investment-ideas/number-cruncher/upcoming-dividends-companies-with-piles-of-cash/article4496058/>.
Reuters. “Canadian Firms Upping the Dividend Game.” – BNN News. Business News Network, 24 Sept.
2012. Web. 29 Sept. 2012. <http://www.bnn.ca/News/2012/9/24/Canadian-firms-investors-upping-the-dividend-game.aspx>.