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How to analyze whether a listed company is using its cash wisely or not with reference to its dividend policy? :scratch:
Paying a very high and unusual dividend is normally not good.
One has to look at quite a few things like the revenue growth and source of funds. Also the sector outlook and the companies future plans.
Normally high dividend paying companies (or one off unusual dividend) , are those with a high stake of the promoter. Paying dividends also indicate that the company has less opportunities to use the cash.
Would be better if you give an example… Maybe attach a file. :good:
[P.S. please create proper topic titles and use tags in the threads]
ok..As an example, say- Amazon does not pay any dividend..on the other hand, 3M is having a dividend payout ratio of 50.2 %…Is it justifiable to consider the ratio of 50.2% to be high? If yes, does it mean that the company don’t have a growth potential in near future? Again, Amazon is not paying any dividend, so is it justifiable to buy its shares? :unsure:
Amazon does not pay dividends because it is a growing stock and also has greater utilization of the liquidity for expansion plans. Buying any equity should not be decided on the basis of the dividend you get, but rather on the risk adjusted return and intrinsic value of the equity and your own risk apetite.
50.2% is high. Please check if this is the payout ratio it maintains always or is it just a one time. Secondly, did it recognize an extra ordinary profit on a one-off sale? Also the shareholding of the promoters…
Loving this discussion ! :heart:
well, let me sum it up and correct me if I am wrong. Amazon does not pay dividends as it invests back the profits for innovation & growth. It’s a growing stock. One should invest in it only if it is for a long time plan. As per data, if someone has invested $1000 at its IPO, it is now valued at over $239,000. On the other hand, The quarterly dividend payout ratio of 3M was 50.2%, whereas the annual was 47% (fisca year 2014). Normally, 3M maintains similar payout ratio annually though the quarterly ratio varies significantly. Thus, with such a high dividend payout ratio, it can be said that 3M is a very matured & stable company. One should invest in it if one is very interested in having short term secured benefits. Moreover, given the technology innovations of 3M, it is expected to continue growing in near future as well. :yahoo: :whistle:
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