Affects of declaring dividends and liquidating

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This type of dividend is used when the company does not have sufficient funds for the issuance of dividends.

When the company returns the original capital contributed by the equity shareholders as a dividend, it is termed as liquidating dividend.

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They reap the monetary benefits without selling the stock.Paying dividends also has several disadvantages: If a dividend-paying company is unable to pay dividends for a certain period of time, it may result in loss of old clientele who preferred regular dividends.These investors may sell-off the stock in short term.Investors prefer companies that have a track record of paying dividends as it reflects positively on its stability.This indicates predictable earnings to investors and thus, makes the company a good investment.

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