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- January 1, 2020 at 9:31 pm
Sir in real life some compnaies like (berkshire hathaway) never pay dividends so there is no relevance of cost of equity in real life
Can we explain this in an exam question where we have to write about what in our option would be the best level of dividend payable ?January 2, 2020 at 6:55 amYou are wrong to say that the cost of equity has no relevance in real life because although some companies do not pay dividends, the vast majority do pay dividends.
As I explain in my free lectures, lower dividends means more is retained which results in an increase in the market value of the shares.
There is no such thing as a standard ‘best level of dividend’. The dividend policy should be whatever is best for the particular investors in the company – some companies pay high dividends which means little capital growth. Other companies pay lower dividends which means more capital growth.
Dividend policy is covered in our free lecture notes and the free lectures that go with the notes.
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