Page 128 - (DK) The Business Book

126

IF WEALTH IS PLACED

WHERE IT BEARS INTEREST,

IT COMES BACK TO YOU

REDOUBLED

INVESTMENT AND DIVIDENDS

fter calculating the year’s to shareholders that most businesses
IN CONTEXT profit, a company’s manage each year. It might amount
A directors can choose to a 3 percent return on the sum
FOCUS
whether to pay a dividend to invested, which would make it
Financial strategy
shareholders or reinvest the sum. comparable to the interest a saver
KEY DATES A dividend is the annual payment might receive from a bank deposit.
1288 The first recorded share
certificate is issued to the
Bishop of Vasteras in Sweden
How much a company pays in dividends or
by Stora Enso, a pulp and
reinvests in the business is decided…
paper company.
17th century The Dutch East
India Company issues shares,
heralding the emergence of
organized share trading.
…according to growth prospects and the health
1940 Peter Drucker writes on of the balance sheet.
the need for businesses to
balance short-term dividends
and long-term reinvestment.
1961 Modigliani and Miller
When the balance sheet is
claim that paying or retaining When growth is high, or the strong, or growth is slowing,
dividends does not affect balance sheet is weak, companies should pay
a business’s long-term companies should retain cash dividends
performance. Their seminal for reinvestment. to shareholders.
work is later disputed, with
several studies showing that
dividend increases boost a
company’s share price.
Directors must balance the need for reinvestment
in the business with shareholder returns.