A corporation has only three uses of cash:
1) Expand assets
2) Reduce liabilities
3) Make distributions to shareholders
a) Pay dividends
b) Repurchase outstanding equity securities
There are few companies which raises capital from primary market regularly and at the same time Companies gives dividend. For ex: Moser Baer regularly takes capital from market and gives dividend. This is surely a red flag for the investors. Small investors need to watch out for these kind of companies. They should ask a simple question if the company is giving dividend, then why is it raising capital. If it doesn’t have capital to do Business, then why is it giving out in Dividend. Why do companies give Dividend when they don’t have capital.The idea is simple Companies give dividend regularly to keep their market share. I would be staying away from these companies.
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