Week 3 Forum 2

The reason why a firm would hesitate to reduce the growth rate of its dividends
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The reason why a firm would hesitate to reduce the growth rate of its dividends
Payments of dividends by a company may be a two- way street. Also, it does not imply that all companies that pay dividends are healthy (Williams, 2016). Even in some occasions, those companies that are healthy often aim at the reduction of the payouts towards their respective shareholders. With regards to the same, this paper reviews on the reasons why a company may hesitate to reduce the growth rate of its dividends.
First a company may (Williams, 2016) hesitate to reduce the growth rate of its dividends because of the changing model of the business such that the long term growth span is not applicable. The other reason could be that the company is in need of cash for the purposes of completing its purchase of the competing company (Williams, 2016). On the other hand, the company may do the same with the objective of venturing in a given project. In some circumstances, when a company is in urgent need of cash, it may not be restricted to small or averaged stocks (Williams, 2016). On the same note, in some cases, companies may hesitate to reduce the growth rate of its dividends with the objective of ensuring reduction in the cash outflow for the purposes of financing mergers and acquisitions. Finally, a company may hesitate in the reduction of its dividends if in case it has slow growths especially because of competition (Williams, 2016).

The situation however, may not be the case where there is a breakage in the business model such that it becomes a function of competition within an organization that is experiencing drastic growth.
References
Williams, S. (2016). 3 Reasons a Company May Choose to Cut Its Dividend — The Motley Fool. The Motley Fool. Retrieved 31 December 2016, from http://www.fool.com/investing/general/2015/09/24/3-reasons-a-company-may-choose-to-cut-its-dividend.aspx