Love it! Virtually identical to our class discussions:
“It seems clear from our recent work that dividends are very resilient, and are unlikely to disappear. What explains this staying power?
First, some argue that dividends provide important “signals” about the strength or quality of the firm’s underlying earnings stream. (Because investors know that a significant dividend is a very strong commitment to paying out at least the current dividend amount on a continuing basis.)
Second, dividends help discipline managers’ tendency to squander their firms’ cash on wasteful or unproductive projects or acquisitions. This is particularly a problem in large, mature companies that generate sizable free cash flow.
Third, it could be that companies are catering to certain investors…”