Economists Merton Miller and Franco Modigliani argued that a company's dividend policy is irrelevant and has no effect on the price of a firm's stock or its cost of capital.
A shareholder may remain indifferent to a company’s dividend policy as in the case of high dividend payments where an investor can just use the cash received to buy more shares.
If a dividend payout is lean, an investor can instead sell shares to generate the cash they need. In either case, the combination of the value of an investment in the company and the cash they hold will remain the same.
Miller and Modigliani thus conclude that dividends are irrelevant, and investors shouldn’t care about the firm's dividend policy because they can create their own synthetically.
Created: 2023-07-25 Tags: #fleeting Link: https://www.investopedia.com/terms/d/dividend.asp
