Why do companies pay dividends?

1) Rewards to the investors- Dividends can be expected by the shareholders as a reward for their trust in a company. Dividend payments reflect positively on a company and help maintain investors’ trust.

2) Indication of the company’s financial well-being- A high-value dividend declaration can indicate that the company is doing well and has generated good profits. Investors see a dividend payment as a sign of the company’s strength and positive expectations for future earnings.

3) Maintain long-term trust within investors- The positive sentiments about the dividend-paying company make the stock more attractive and thus this holds the trust of the investor for the long term.