Top 3 Disadvantages of Paying Dividends

Index Development plays a very important role in the growth and development of each and every phase. This requires the Index Maintenance which might put extra burden on the financial resources of the company. An important aspect of running the company smoothly in the appropriate application of Dividend Index policy. A company might profit by paying the regular dividends. However, there are certain disadvantages of paying dividends regularly. Here are the top 3 disadvantages of paying dividends.

Loss of clientele

The company that is known to pay dividend to the clients on timely basis, for some reason it is not possible to do so for a continuous time period that it has a negative effect on the clientele. This may cause a drastic loss to the company in terms of old clientele who have always expected the regular dividends from the company. Such investors might prefer to sell-off the stocks in the short term.

Reduction in retained earning

A company that constantly and regularly pays dividend cause reduction in the retained earning that it has. At any time, there may arise the conditions of debt obligations or else the unexpected expenses may crop up. In such circumstances, due to reduction in the retained earnings the company will not have enough cash.

Limits the growth of company

The company that pays dividend means that it has less usable cash. This implies that there is a big time hurdle that may hinder the growth of the company. The company this way remains with the less money that it can really invest in the growth of its business.

All in all, these are the top 3 disadvantages of paying dividends. You need to acknowledge that the dividends are vital when it comes to making the investors satisfied and happy. Therefore, it becomes important for a company to take the decisions related to time as well as the form of dividends carefully so that it reaps benefits and has no adverse effects. All the pros and cons of the dividends must be considered prior to framing the policy for dividend payments.

Source : https://agriculturetrindex.wikidot.com/top-3-disadvantages-of-paying-dividends