Investors who are against dividend-payout often argue that it is better for the company to be using the funds to fuel quicker growth than to be distributing them to shareholders. In theory, dividend-payers should grow more slowly than non-dividend-payers. In reality, it often works out just the opposite. Dividend-payers often grow faster. How come? For the same reason that those who give to charity often live full lives themselves too. Giving is a sign of strength. Many companies that pay good dividends do so because they can afford to pay good dividends; they are strong companies. The dividend that a company pays is not just a number. It is a behavioral sign of the strength of the corporate enterprise.

Excerpted from an article Parag's View.

Parag Parikh is an out-and-out value investor.
I would like to have TEDdies' opinions about his stock recommendations.

Originally posted by Vivek Sukhani Did he compare dividend with charity?????....

He did, but not in a negative or insulting way. Parag Parikh has always highlighted dividend-payouts as a positive aspect.

Let's take 10-year bond yield at 8% and tax rate at 30%. Now consider shares of a company which pays dividends regularly (whose dividends can be thought of as a constant stream of cash flows similar to what a bond pays).
Effective bond yield is 5.4% and the bond trades at par.
So an investment of Rs 100 yields Rs 5.4, which means a multiple of 18-19 times.
This is assuming that the dividends are certain.
For the company's stocks to trade at a higher valuation, it needs to grow earnings in excess of 20%.
So it makes sense for a company to pay more and more dividends if tit can't grow its profits in excess of 20% or so (the figure would vary depending on bond yields and tax rates).
Companies which can't grow their profits fast enough should ideally pay dividends as they would attract higher multiples this way.