Why do some companies not pay out all profits?

a) The profits might not all be in cash, but in debtors from customers, extra stock in warehouses or on shop shelves, positive revaluation of property, etc

b) If the owners of the business take every penny of profit out of the business, the business doesn't go into the next year with any extra money to help them succeed- grow the business, grow profits, defend their position against rivals, etc. Effectively just surviving on what it's got and doing the best it can while other rivals have more free cash for expansion plans, relocate production, marketing etc etc which can all use up cash.

It is a sad day in the life of a company when the directors can find no better use for the funds than to give it back to the owners and tell the owners to spend it themselves or to invest it in someone else's company.

So, most investors will expect that a decent proportion of the profits will be used on growth aspirations; and the company is attractive if it has more than 1.0 x dividend cover because that means the dividend is likely sustainable and reliable into the future, and it's a relatively 'safe' investment opportunity compares to other companies that are barely scraping by.

Some other companies pay relatively higher dividends because their businesses naturally throw off more cash and don't have the same growth aspirations. A water company with a monopoly in one regiion is not going to suddenly add more reservoirs and hope to get more customers. A tobacco company whose product is effectively banned in public spaces with marketing prohibited in more and more shops all over the developed world, is not going to keep reinvesting all its profits to place more cigarette machines in London pubs, but they will keep getting lots of cash from the addicts, and can afford to kick out a lot of cash to the shareholders while letting a portion of their profits sustain their push into russia and china and africa and latin america where people might be more gullible or looking to emulate what the Westerners were doing in previous decades.


c)
d)
e)
f)
are other reasons that I can't be bothered typing out, the first two are the main ones.

NewInvestor1 wrote: »

I understand however Nike is not a company I would classify as needing to grow. Its already established and if I was an investor, I'd be annoyed that they were not paying out 100% of their profits, rather than 30%.

Probably something to with their global tax position. As a US company they'll have been keeping their cash offshore. Instead of paying dividends. They'll be borrowing cheaply in the US and using the cash to purchase Nike stock. Enhancing executives share option schemes rather than benefitting ordinary shareholders. Trump's change of tax policy might well bring about change.

The share price will reflect the extra cash the company holds, so its all swings and rounder bouts really when it comes to total return on any given share.