DTF.com.au

financial management?

1.4 FINANCIAL MANAGEMENT 1.The primary purpose of the firm is to pay dividend for the share holders. Therefore, irrespective of the firm’s need and desires of share holders, a firm should follow a policy of very high dividend payout – Comment.

Public Comments

1. I disagree. To state that a firm's primary purpose is to pay a dividend does not therefore mean it should do so if, in doing so, it jeopardizes it's future capacity for paying dividends. It's first goal must be survival.
2. I would have thought that dividend can only be paid out to shareholders if the firm made a profit in that financial year. No profit = no dividend to shareholders. Also, the amount of profit is relative to the amount of dividend payable to shareholders.
3. Very high dividend payout is suicide unless the company is way too profitable. Profits can be reinvested to generate higher return in the future, instead of paying them out as dividend. Warren Buffett favors reinvestment of profits to enhance further growth in shareholder value. So it's not necessary to pay dividend. Paying dividend slightly above the fixed rate is only for attracting investors. No company is stupid enough to pay very high dividend unless this company is very highly profitable or just simply trying to cheat the public. Ask yourself, if your company has $1 million, why should you pay $800 k of it as dividend, instead of reinvesting it back to generate, say, $1.2 million in the future, an extra $200 k?