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A young, high-growth telecommunications firm pays no dividends, though the average dividend payout for other firms...

A young, high-growth telecommunications firm pays no dividends, though the average dividend payout for other firms in the telecommunications sector is 40 percent. Is the company paying too little in dividends? Why or why not?

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Answer #1

No, the company is not paying too little in dividends. It is perfectly alright for a young, high-growth telecommunications firm to pay no dividends at all. By not paying the dividends, the company is making the best use of the free cash flow by investing in the projects that are contributing to the growth of the company.

If the company chooses to payout dividens in the high-growth stage, then it is going to impede the growth of the company. The company can consider paying divideds when there is no attractive opportunity to invest.

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