Question

evaluate this statement it is better to pay dividend then retain earnings?

Answer 1

It depends upon the nature of business and the stage of life cycle of business because when the company will be a mature company, it is better to repay the dividend back to the shareholder because it won't have enough growth opportunity in its hands, whereas if the company will be having adequate amount of growth opportunity on its hands and the company will be a growth company, it is better to retain the profit and reinvest it back into the business in order to maximize the rate of return rather than repay it in form of dividend.

Hence, this statement is not appropriate to make because it is always depending upon the nature of the business and the quality of shareholders along with the growth opportunity of the business so, the dividend payout and dividend retention should be based upon the specific element which are mostly related to growth opportunities and taxations also.