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Imagine if you were a business owner who was considering taking your company public. You would...

Imagine if you were a business owner who was considering taking your company public. You would be faced with similar questions. As a small business owner, would you want to pay dividends? Why or why not? How would you rationalize this to the shareholders?

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Answer #1

I would not want to pay dividends initially, because it would be a period of high growth which would be realizable if the company has funds hence would want to retain all the funds rather than paying out as dividends.

For shareholders, the total return would be sum of income(or dividend yield) and capital gains. So if dividend yield is low currently because of no dividend payout, capital gains yield is high because of future projects and future growth. Hence they should understand that they are trading dividends now for future capital gains, which would be much higher.

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