3 Causes Why Some Firms Do Not Pay Dividends

Up to date on September twenty second, 2025 by Bob Ciura

This text is a visitor contribution by Ryan Scribner from Investing Easy.

In the case of investing within the inventory market, you primarily have two kinds of buyers on the market.

The primary is a development investor. That is somebody who’s seeking to put their cash behind firms which might be increasing and scaling operations.

In flip, this could translate to development in income or complete gross sales. Many of those firms are unprofitable, however that’s the worth you pay for top innovation. The aim with development investing is to purchase shares at a low worth and promote them afterward for a revenue.

The second kind is an earnings investor. Such a investor is seeking to maintain shares that pay dividends, such because the Dividend Aristocrats.

There are at present 66 Dividend Aristocrats. You’ll be able to obtain an Excel spreadsheet of all 69 Dividend Aristocrats (with monetary metrics that matter equivalent to dividend yields and price-to-earnings ratios) by clicking the hyperlink under:

 

Disclaimer: Positive Dividend isn’t affiliated with S&P International in any method. S&P International owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet is predicated on Positive Dividend’s personal evaluation, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s based mostly. Not one of the info on this article or spreadsheet is official information from S&P International. Seek the advice of S&P International for official info.

For individuals who aren’t acquainted, dividends are a method {that a} nicely established and worthwhile firm shares their earnings with shareholders. Most earnings buyers are solely taking a look at firms that pay dividends when making investments.

The aim isn’t a lot to develop the share worth. As an alternative, it’s to receives a commission whereas holding onto shares by dividends. Buyers need these quarterly or annual dividend funds for the aim of reinvestment, or earnings for another function.

Reinvestment permits for compound curiosity, a strong wealth-building financial phenomenon. As such, dividends are a incredible approach to earn compound curiosity.

Firms within the development stage not often pay dividends. Many of those firms aren’t even worthwhile but. They’re targeted on acquisitions, growth, product improvement and all of those different issues that value some huge cash. Because of this, they merely can’t afford to pay a dividend.

Most firms start paying dividends as a approach to entice and reward shareholders. These dividend payers are sometimes firms that don’t have huge development potential. That’s largely as a consequence of the truth that a number of their development occurred a few years in the past. They’ve now grow to be titan’s of their industries.

You will need to bear in mind, nevertheless, that dividends are by no means assured. An organization can minimize or cancel a dividend at any time. Typically talking, firms prefer to proceed paying dividends and proceed rising them to earn the belief of shareholders.

That is also known as the dividend development streak. So now we perceive why development stage firms don’t pay dividends and why nicely established firms do.

However what about nicely established, money flowing firms that don’t pay a dividend? It’s a unusual but frequent phenomenon. Bear in mind, there is no such thing as a legislation or requirement on the market that claims an organization has to pay dividends to shareholders, so many firms don’t!

Listed here are among the most well-known, massive firms that don’t pay dividends…

Word: Click on on the hyperlinks under to learn evaluation on if these firms will ever pay a dividend.

So, what provides? All of those firms talked about may fairly afford to pay a dividend to shareholders, however they don’t pay a penny. And but, the share worth nonetheless climbs. Whereas I don’t have a crystal ball, listed below are a number of logical the reason why they don’t pay dividends.

Cause #1 – Reinvesting Earnings

The primary cause why some firms don’t pay dividends is as a result of they’d quite reinvest these earnings again into the enterprise. That is precisely what development stage firms do, however some firms by no means cease!

Think about Amazon for instance. Somewhat than paying dividends to shareholders, the administration workforce believes they will ship higher worth to shareholders by reinvesting the earnings again into operations. Not solely that, this can be a authorized method for Amazon to keep away from taxes as nicely!

This is among the most important the reason why firms like Amazon are so revolutionary. They generate a ship load of money, after which they reinvest that money again into new merchandise, concepts and companies. If firms like Amazon or Tesla that reinvest money closely have an enormous win, it should finally make the share worth climb increased which brings worth to the shareholders.

Cause #2 – Acquisitions 

Another excuse why firms will maintain off on dividend funds and hoard money is for acquisitions. This occurs when one firm basically purchases one other one, they usually merge beneath one entity. One other frequent prevalence is when an organization will buy an possession stake in one other firm.

Acquisitions are one thing that Warren Buffett may be very well-known for. He’s the chairman and CEO of his firm Berkshire Hathaway, talked about earlier.

Buffett has spoken out in opposition to paying dividends prior to now, stating that cash might be spent higher in different methods. He believes, and has confirmed, that he can ship extra worth for shareholders by reinvestment and acquisitions.

Cause #3 – Debt/Monetary Bother 

Right here’s a distinct state of affairs to think about. Typically you’ll run into an organization that used to pay a dividend, however not does. Or, they slash the dividend. The primary cause behind that is monetary hardship.

As talked about earlier, firms typically prefer to proceed paying dividends, as this attracts shareholders and retains them round. Nevertheless, generally you’ll run into an organization that has to chop or remove a dividend as a consequence of monetary troubles.

Think about Basic Electrical (GE) for instance. For many years, they have been often known as a terrific inventory for earnings buyers with a really secure dividend. After their unraveling started in 2017, extra unhealthy information adopted. Lastly, in December of 2018 it was introduced that they’d slash the dividend to a penny a share.

The explanation behind it’s because paying a excessive dividend at this time limit was financially irresponsible. At one time limit, the long run was unsure for GE based mostly on the monetary well being of the corporate.

The easiest way they may convey worth to shareholders was to get the corporate again on observe. This meant that the cash being spent on a excessive quarterly dividend was higher spent paying down money owed and bailing out the corporate.

Closing Ideas

We’ll all the time have some firms that pay dividends and a few that don’t. Sometimes, we have now the white elephants like Alphabet, Meta, Berkshire Hathaway and the opposite firms talked about above that don’t pay dividends regardless of a transparent capability to afford one.

In abstract, the primary cause for not paying a dividend is as a result of these firms have determined they will higher spend the cash elsewhere, and buyers in these firms imagine them!

I’ll put it this fashion, would you quite make investments $1,000,000 or have Jeff Bezos make investments $1,000,000? Most individuals would select Jeff Bezos, based mostly on his observe report, and that’s the reason they’re comfy with investing in Amazon despite the fact that they don’t pay a dividend.

Different Dividend Lists

The next lists comprise many extra high-quality dividend shares:

• The Dividend Achievers Record is comprised of ~400 NASDAQ shares with 10+ years of consecutive dividend will increase.
• The Dividend Kings Record is much more unique than the Dividend Aristocrats. It’s comprised of 56 shares with 50+ years of consecutive dividend will increase.
• The Excessive Yield Dividend Kings Record is comprised of the 20 Dividend Kings with the best present yields.
• The Blue Chip Shares Record: shares that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
• The Excessive Dividend Shares Record: shares that enchantment to buyers within the highest yields of 5% or extra.
• The Month-to-month Dividend Shares Record: shares that pay dividends each month, for 12 dividend funds per yr.
• The Dividend Champions Record: shares which have elevated their dividends for 25+ consecutive years.
  Word: Not all Dividend Champions are Dividend Aristocrats as a result of Dividend Aristocrats have extra necessities like being in The S&P 500.