Question

Shawn starts a business called valuecentral.com, the concept takes off, and the company has an ipo and goes public. the company is growing very rapidly and trying to keep up with customer demand. what type of dividend is this company likely to pay its stockholders? a large dividend due to high earnings an average size dividend very small or no dividend all profits to be paid as dividends asno stock is involved, dividends irrelevant

Answer 1

In such a case Shawn's company cannot and should not give out a dividend.

Since the company has just raised money, is growing and profitable and it is becoming hard to keep up with demand, this is the best time for the company to reinvest its profits to:

1. Hire more people/Buy more product

2. Improve processes

3. Use the profits to invest in R&D

4. Use the profits to invest in marketing and promotion

5. Invest in providing better customer service

So no dividend should be given since it can hamper the growth of a young company. The money should be used to grow the company for now and in the future all shareholders can enjoy good dividends.