Tuesday, July 28, 2009

Why dividend isn't good

From the investor point of view, getting dividend is a good thing since it is a return of your investment. However, for a company that is an expense that could have been reinvested for better returns. Furthermore, the dividend is subjected to tax and further reduce the value for the company.

However, some companies now give scrip dividend which is better. It means you can choose to reinvest the dividend and buyback more share of the company. This isn't subjected to tax and it makes more sense if you trust the company to create better returns than you with the taxed dividend.

Nevertheless, company paying dividend constantly is worth getting when you have little risk appetite but still wish to dabble in stock.

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