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If a company has a high dividend payout ratio , What will be the effect?

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Question added by Thaikkattil Mathew Joshi , Group Credit Controller , Gps Group,Dubai.
Date Posted: 2014/10/18
AJAY AJIT
by AJAY AJIT , Managing Director , Quicksilver Systems & Consulting Pvt. Ltd

If a Company has a High Dividend Payout Ratio, it means that the company is pro-active in sharing profits with its shareholders. Alternatively, it could also mean that the stock price of the company is trading at a discounted PE with respect to peers and hence the higher relative Dividend payout Ratio. 

Another possibility is that the Promoter shareholding is high and dividends are being paid out to share higher proportion of company profits with the promoters.

In case of reasonable promoter shareholding, the comapny's shares should see appreciation and should command a higher P/E ratio.

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