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Consider the Dividend Irrelevance Theory and explain the following: Generally speaking, why is there an inverse...

Consider the Dividend Irrelevance Theory and explain the following: Generally speaking, why is there an inverse relationship between dividends and the potential for growth?

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Dividend pay out ratio means the rate of distributable profit and retention ratio means rate of accumulated profit. Dividend pay out ratio and retention ratio are inversely related. so a company pay higher rate of dividend when there is low prospect for higher growth. A higher dividend means the company has less opportunity for growth therefore company will not retain the profits. If there would have been higher visibility of growth the company would not give out dividends and would retain them for consumption in investment opportunities which can generate superior return. Similarly lower or no dividends means the company has better growth opportunities in hand and consequently is declaring less dividends.

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