In finance theory, you learn about dividends and the “bird in hand” concept, which suggests that investors prefer dividends to larger capital gains because they are banking a return at an earlier stage and with more certainty.
But here’s the thing: if the company has great investment opportunities available, you technically shouldn’t want dividends. The company should retain all earnings and invest them at a rate that exceeds the cost of equity . In doing so, the company is seen as a “compounder” that generates strong returns over many years...
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