swaps

Why Should Companies Pay Dividends?

I think setting aside some profits and paying it as a dividend is a good discipline for a company. In theory, it motivates them to cover the dividend in their operations. Too many companies retain earnings and then blow it on wasteful ventures.

On the flip side, a company like brandywine reit has lowered its dividend for 2009 to $1.20, which is says it can cover. I bought some more shares at $4 and will get a 30 percent yield. But the danger is any naked short sellers will scream at brandywine to cut the dividend and conserve cash because they don't want to cough up payments for the uncovered shares they've sold.

Right now, companies that can cover dividends will be really pressured to cut them because of the extraordinary yields. - like enlay.pk at 18 - 20 percent.

But i think they should pay out the money whether the yield is 2 percent or 20. If they stay the course - and are not burning through cash like gm - they should get a quicker recovery once it is morning again in America.

Mature companies need to kick back some of the wealth to all holders, rather than immorally divert it to management options at obscene levels.

D