why do companies pay dividends 
many investors buy stocks for their dividends rather than for their potential for share price growth some extraordinarily successful companies like coca cola co are prized more by investors for their steady dividends than for their potential price growth dividends are often expected by shareholders as their share of the company s profits dividend payments reflect positively on a company and help maintain investors trust a high value dividend declaration can indicate that a company is doing well and has generated good profits but some may interpret it as an indication that the company does not have much going in the way of new projects to generate better returns in the future it s using its cash to pay shareholders instead of reinvesting it into growth a company with a long history of dividend payments that declares a reduction or elimination of its dividend signals trouble at t inc cut its annual dividend in half to 1 11 on feb 1 2022 and its shares fell 4 that day 910however a dividend cut does not necessarily translate into bad news the company s management may have a plan for investing the money in a high return project that could magnify returns for shareholders in the long run mutual fund dividendsdividends paid by funds are different from dividends paid by companies funds employ the principle of net asset value nav which reflects the valuation of their holdings or the price of the assets that a fund has in its portfolio 11regular dividend payments should not be misread as a stellar performance by the fund for example a bond investing fund may pay monthly dividends because it receives monthly interest on its interest bearing holdings and merely transfers the income from the interest fully or partially to the fund s investors a stock investing fund pays dividends from the earnings received from the many stocks held in its portfolio or by selling a certain share of stocks and distributing capital gains 