InvestorQ : Is it true that high dividend payers are normally low growth companies?
Lavanya Subramanian made post

Is it true that high dividend payers are normally low growth companies?

Answer
user profile image
2 years ago


At the end of the day, it will be a trade-off between high growth and high dividend yields. Companies that have high growth prospects generally tend to pay lower dividends as the money needs to be reinvested back in the business. Also high growth companies tend to boast of high P/E ratios (pharma and FMCG) and hence the dividend yield argument will largely fall flat in such cases. But above all, one needs to focus on the cyclicality of earnings and larger challenges facing the company. Take the case of steel. Even though their dividend yields may be attractive, steel prices are going through the downside of a super-cycle and hence the argument cannot be used. Secondly, most PSU banks have a high dividend yield because they are required by the governments to pay out high dividends. Here again, the high dividend yield cannot be construed as an investment argument.