dividend basics

pog it

Thicko newbie question on its way!

I've read that dividends can be distributed to shareholders in two main ways- they are either re-invested in the company, and the shareholder gets given the extra shares to the value they invested originally, or secondly, shareholders can get a cash payout on their shares.

So if a company is not paying dividends- can you assume that means that they are reinvesting shares in themselves due to good growth prospects?

Or do some companies just plain not pay dividends cause they can't afford it cause for example they're maybe say an emerging company? Or because they are faring so badly they don't have the cash?
Can you tell from the financial stats widely available which scenario is true?

Thanks in advance for any or one answer!

Mort5000

You can have a look ISE to see who is paying dividends on the ISEQ in the near future.

As for how they are paid.. I had not heard of re-investing. That sounds more like a fund that would do that, as opposed to an actual company.

Whether they pay dividends or not is pretty much up to the company.
Some that used to pay have stopped paying (Bank of Ireland for example).

My experience would be that shares are typically 'dividend paying' or 'not dividend paying' shares, and they remain that way except in times of crisis.

Additionally, you can look at share sites to see which companies are paying dividends.

For example: AVIVA you can see the dividend yield.
Share price 338.75, dividend 33, yield(9.76%)

woodseb

pog it wrote: »

So if a company is not paying dividends- can you assume that means that they are reinvesting shares in themselves due to good growth prospects?

No, you can't assume that for the reason you have put below...

Or do some companies just plain not pay dividends cause they can't afford it cause for example they're maybe say an emerging company? Or because they are faring so badly they don't have the cash?

Can you tell from the financial stats widely available which scenario is true?

Yes, it's fairly easy to tell from the financials through looking at cash flow, retained earnings etc. Companies are usually good at explaining what their dividend policy.

Thanks in advance for any or one answer!

np

pog it

Came across this website

http://www.dividendinvestor.com

which concentrates only on dividend history of a company.

I realise you have to weigh up a range of factors when you're researching a company apart from dividend obviously but I'm interested in seeing how it can help. I read that Warren Buffett didn't pay dividends with Berkeley Hathway for a long while as it was in fast growth phase and instead of paying the dividends out in cash to shareholders, he was reinvesting that as extra cash. So I guess an investor can be happy with that scenario (assuming its a good company) because that way with higher growth, share price is going up following success of company, then if the rate of growth slows or reaches its plateau, they will raise dividends to maintain shareholder interest- new or old.

Is that a safe assumption? Now, any catches?

Stevebyrne

Some companies don't pay dividends,
Like Ryanair.
yet I find it strange that they still have good share price.

ixus

The reason Ryanair don't pay a dividend is because they plough their money back into the company.

A company that pays a large dividend might be viewed as one that cannot grow any further organically. It can only grow through acquisitions.

A company that might be viewed as a growth company pays no dividend as it uses it's returns to grow the copany.

Banks previously paid big dividends because they were making huge profits and, even though their loan books were growing, they were not growing organically. They might purchase another bank here or there or, a subprime lender but really, their loan book was growing via mortgages and construction loans.

Obviously it can be more complicated than that but, it gives you a starting point.

So, if you go back to Ryanair, no dividend because they are continuously loking to expand their business model. The share price is not dependent on dividend returns, it's determined on the expectation of future growth and profit.

daveirl

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