A dividend policy of a Company is a vital piece of info which should be considered for an investment decision. Generally a Co in high growth path would like to retain max earnings into the business to fund it's expansion plans. This sounds reasonable provided growth can be seen
If a Co doesn't have much of an expansion requirement or churns free cashflow in excess of its expansion, it should distribute the surplus to the shareholders. This is again okay, provided, one is not investing in a Co which has sub par growth and no future capex
A Co may retain its earning to bail it out of debts or excessive working capital needs. A not so happy situation to be in. This could at times be confused with high growth requirements & needs to be studied by lifting the lid of the can. Nothing much can be done here and
An investor in such a situation may be rather prudent and say good bye to such Companies.
Lastly taxation. Let's assume if you have all stars aligned by being with a Company which is growing and chugging out good amount of cash & distributes major part as dividends...
In India, Dividend is now taxed like normal income which can pinch really hard for high tax rate payers, giving over 30% to the tax man. If the Co doesn't pay dividends, it's Capital allocation would be shouted at. If it does, the tax outflow by large owners would be a sad state
Either way, considering markets are insane in valuing Companies stock price, I would prefer to rather get that Dividend, pay taxes and enjoy the cushion.
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