Dividend policy - Antoine Ngoupou MBA 545 Dividend Policy...

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Antoine Ngoupou MBA 545 Dividend Policy at FPL Group, INC 1. Why do firms pay dividends? What, in general, are the advantages of paying dividends? What are the disadvantages of paying dividends? Companies pay dividends depending on their financing and investment decisions. If they plan on financing through borrowing, then it helps them to release cash for dividends in order to eliminate the problem of having large cash balances on hand. Additionally, dividends are an immediate cash payment to the stockholders whom can either decide to spend or reinvest it. Paying dividends offers a lot of advantages to the investors as well as acting as a signal device in the market. When dividends augment, it is usually interpreted that the company's value has increased which might cause the stock to increase in value. If the earnings decrease and the company continues to pay its expected dividends, it might bring us to the conclusion that the company is sound and that the decrease in earnings is only temporary and that in the long run the company will recover from its loss. If the company pays out too much dividends, then they can replace the cash by issuing new stock at no cost without signaling consequences. The payment of dividend can also come to a disadvantage in the market as a signaling
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This note was uploaded on 04/29/2010 for the course MBA 545 taught by Professor Debraco during the Spring '10 term at American University in Bulgaria.

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Dividend policy - Antoine Ngoupou MBA 545 Dividend Policy...

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