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How will Gainesboro’s various providers of capital, such as its stockholders and creditors, react to a declaration of no dividend? What about the announcement of a 20% or 40% payout? How would they react to a residual payout policy?
Mainly divided by two categories: income seeking investor or capital gains investor
1) Institutional growth oriented: capital gains investor
These types of investors are interested in companies which have a high growth potential. They want the company to keep profits as retained earnings so that it can use these funds to fuel its future growth. Hence they will react negatively to dividend payments.
2) Institutional value oriented: income seeking investor
In this strategy, investors select stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated. Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields. Thus they will favour that the company pay high dividends.
3) Individual investors long term retirement: capital gains investor
These types of investors prefer stocks which retain cash to support future growth. Thus they will prefer that the company doesn’t pay.
4) Short-term trading oriented: income seeking investor
These types of investors will benefit from the declaration of dividends. Thus they will react favorably to dividend declarations.
When no dividends: pay low/no dividends because they would reinvest the excess cash from the earnings for future growth opportunities. With reinvestments, firm could generate more returns to the investors. This would not only help the firm compete in the market
Mainly divided by two categories: income seeking investor or capital gains investor
1) Institutional growth oriented: capital gains investor
These types of investors are interested in companies which have a high growth potential. They want the company to keep profits as retained earnings so that it can use these funds to fuel its future growth. Hence they will react negatively to dividend payments.
2) Institutional value oriented: income seeking investor
In this strategy, investors select stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated. Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields. Thus they will favour that the company pay high dividends.
3) Individual investors long term retirement: capital gains investor
These types of investors prefer stocks which retain cash to support future growth. Thus they will prefer that the company doesn’t pay.
4) Short-term trading oriented: income seeking investor
These types of investors will benefit from the declaration of dividends. Thus they will react favorably to dividend declarations.
When no dividends: pay low/no dividends because they would reinvest the excess cash from the earnings for future growth opportunities. With reinvestments, firm could generate more returns to the investors. This would not only help the firm compete in the market