Pros & Cons of Paying Dividends

According to the Maps of World website, a dividend is a payment made by a company to its shareholders. This payment is made from the profits and assets held by a company at certain periods through the financial year.

Dividends

Maps of World reports that dividends are not considered an expense to a company, but a dividend is seen by companies as a distribution of assets to shareholders. A company can choose to pay dividends, or retain their assets to be reinvested into the company.

Benefits

The Investopedia website reports that payment of dividends to shareholders often is seen as a sign of the financial health of a company. Paying dividends also can attract investors who feel they can receive the regular financial benefit of a regular income provided by dividend payments.

Cons

A problem faced by investors being paid dividends from a company's assets is the high rate of interest charged on dividend payments. This rate is higher than the taxation charged on other investments, such as bonds. Investopedia reports that by paying dividends a company reduces the amount of profit it retains for reinvestment and expansion.

References

• Investopedia: How & Why Do Companies Pay Dividends
• Maps of World: Dividend & Payment