Question: Should a company focus on retained earnings or dividend payouts to promote an image of stability to potential investors? Dividends are payouts to investors, or

Should a company focus on retained earnings or dividend payouts to promote an image of stability to potential investors?

Dividends are payouts to investors, or in accounting terms, stockholders, after turning a profit The stockholders share in the profit. Retained earnings are profits that the company retains and usually reinvests in the growth of the business. Edmonds (2020).

I was curious how these options are utilized by businesses in the real world. An article in Investopedia explains the pros and cons of dividend payouts and retained earnings. Fontinelle (2020). It seems the main benefit to dividend payouts is the perception of stability it provides the business, and the steady income it provides investors. However, retained earnings seem to be a more conservative move when a company is growing, and it reduces the business costs of issuing stock.

What are your thoughts?

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