Dividends are not only the norm in Europe in terms of how excess capital is paid out to shareholders. Dividends also offer a return that isn’t determined by the share-price development. Furthermore, they provide a signal that the company is financially healthy. Does this mean that excess capital should always be paid out as dividends?
In the new Nordea On Your Mind podcast Johan Trocmé and Viktor Sonebäck discuss the different ways available for companies to handle excess capital. In the US, for example, share buybacks are the most common option. A contributing reason is likely that earnings-per-share is an important KPI in management-equity-incentive programs and fewer shares mean that the profit is split between fewer entities.
Another option to consider is, of course, keeping the capital and using it for investments and expansion.
So which solution is better and why? Do companies that favour one of the solutions perform better than those opting for the other alternatives? Find out what our Research Insights team arrived at by listening to the new podcast To pay or not to pay.
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