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How Much Should A Firm Pay in Dividends?

Richard Dobbins, Stephen F. Witt

Abstract

The objective of the firm is to maximise the wealth of its owners. If corporate managers can maximise the market value of the firm by manipulating dividend payments, then they should do so. The optimal dividend policy, if there is one, is the policy which maximises shareholder wealth. As the value of the firm depends upon anticipated operational cash flows, new investment, and risk, then it seems improbable that managers can create wealth by distributing cash flows generated by successful trading between dividend payments and retentions within the company.

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Key concepts: Dividend, Dividend policy, Business, Shareholder, Payment, Cash, Value (mathematics), Cash flow