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There are companies out there paying dividends of fractions of a percent. Why do they bother doing that? There isn’t much an investor can do with a yield of 0.1%, even if their holdings in the company are fairly large.

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    Because 0.1% > 0.0%. No one gains from placing the excess capital on a bank-account, if the company cannot spend it more wisely.
    – ssn
    Nov 14, 2021 at 7:51
  • If a company's ROIC is meaningful then I'd prefer they keep the money rather than spreading a few tens of millions of dollars across hundreds of thousands of shareholders. I'll probably want to reinvest those dividends, but now I have to pay taxes on them too, so they may as well have stayed with the company to begin with.
    – cph2117
    Nov 14, 2021 at 15:43
  • but that is prerequisite regardless of the amount. If the company’s ROIC is larger than shareholders otherwise opportunity, then they should keep the capital in the company.
    – ssn
    Nov 14, 2021 at 15:48
  • There are companies like JNJ which generate a lot of cash and have good ROIC, but don't have much in the way of organic growth prospects. In that case I want them to return some of that cash to me rather than going off and acquiring/expanding the company for the sake of expanding the company.
    – cph2117
    Nov 14, 2021 at 15:53
  • because expected ROIC on re-investing it not big enough; therefore it should be paid out. If they can generate New ROIC > Old ROIC, then for sure they should keep it.
    – ssn
    Nov 14, 2021 at 15:56

1 Answer 1

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In the case of NVIDIA, the company had a dividend yield of 2.6% in 2012. It doubled its cash dividend payments by 2021. However, its dividend yield is now 0.05% because its stock price has increased far more than its dividend has.

As for 0.1% being useless, I would tend to agree, although 0.1% is higher than the average savings account rate in the United States.

Why hasn't NVIDIA eliminated its dividend? For longtime shareholders, the dividend yield is still substantial if calculated based on their initial investment. Further, it's considered to be bad news if a company lowers or eliminates its dividend.

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  • Good point re: longtime shareholders potentially still getting significant yield
    – cph2117
    Nov 14, 2021 at 4:53
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    Yield isn't the same as interest Nov 14, 2021 at 17:40

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