Aswath Damodaran 469
Mandated Dividend Payouts
! There are many countries where companies are mandated to pay out a certain
portion of their earnings as dividends. Given our discussion of FCFE, what
types of companies will be hurt the most by these laws?
# Large companies making huge profits
# Small companies losing money
# High growth companies that are losing money
# High growth companies that are making money
It will most hurt high growth companies that are making money, and thus will be
mandated to pay out dividends, even though their FCFE is negative. Note that
while earnings are positive, the net cap ex needed to sustain growth might make
the F#CFE a negative number.
