If the company's ROE and ROCE are above the normal rate of return the company should use the excess cash to expand business rather pay off dividends.

 

In case the opportunities for business expansion are limited and not forthcoming then one should not be invested in that stock because the market pays for growth only

 

Companies that pay off a one time hefty dividend accept that there is no opportunity for expansion for at least a couple of years down the line . The Markets may take the stock up but after a while the price retraces.

History shows that dividend yield acts only as a floor to a stock price but is never powerful enough to create market cap.

“Far more stocks giving a bad performance come from high dividend paying companies rather then the low dividend paying group . An otherwise good management that increase dividends and thereby sacrifices worthwhile opportunities for reinvesting increased earnings in the business is like the manager of a farm who rushes his magnificent livestock to the market the minute he can sell them rather then raising them to the point where he can get the maximum price of above his costs. He has produced a little more cash right now but at a frightful cost” – Philip. A. Fisher