Coca-Cola Dividend Policy
The definition of dividend is as follows: A dividend is the distribution or sharing of parts of
profits to a company's shareholders. Now the question is why do companies pay dividends to it
s shareholders? Because it’s the shareholders that are the real owners of the corporation and one
would not own a piece of anything unless it would make money for them. So in turn a company wants
to pay dividends to keep the shareholders happy and show that they are being profitable. There are
two things a company can do when talking about dividend policy. One is tp have the firm distribute
income as cash dividends or to have it either repurchase stock or else plow the earnings back into
business. Both of which should in theory result in capital gains. So the companies optimal dividend
policy must strike a balance between current dividends and future growth so as to maximize the
stock price.
Some reasons a person might want to receive income in the form of a cash dividend would be
that the cost of capital decreases as the dividend payout is increased because investors are less certain
of receiving the capital gains that are supposed to result from retained earnings then they are of
receiving dividend payments. In effect, investors value a dollar of expected dividends more
highly then a dollar of expected capital gains. It is less risky then the total expected return equation.
Some people prefer to have their money in their own possession so they can value it better. Rather then
trying to value their dollar while it is still being used by the company to get hopefully larger.
A person may be against the high dividend policy of a company because dividends are could
be t ...