Why Firms may pay out less than is available

For several reasons, many firms pay out less to stockholders, in the form of dividends and stock buybacks, than they have available in free cash flows to equity. The reasons vary from firm to firm and we list some below -

• The managers of a firm may gain by retaining cash rather than paying it out as a dividend. The desire for empire building may make increasing the size of the firm an objective on its own. Or, management may feel the need to build up a cash cushion to tide over periods when earnings may dip; in such periods, the cash cushion may reduce or obscure the earnings drop and may allow managers to remain in control.

• The firm may be unsure about its future financing needs and may choose to retain some cash to take on unexpected investments or meet unanticipated needs.

• The firm may have volatile earnings and may retain cash to help smooth out dividends over time.

• Bondholders may impose restrictions on cash payments to stockholders, which may prevent the firm from returning available cash flows to its stockholders.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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