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Pay dividends?

  The most conventional course for a company generating earnings above those needed for reinvestment in the business is to simply pay them out to the shareholders in the form of dividends: as Midnight Oil puts it, ``It belongs to them--let's give it back''. Tax policy in the United States, combined with a tradition of high-technology companies not declaring dividends, has made dividend payments unusual among small, high-growth companies. The financial situation of a New Technological Corporation warrants revisiting whether dividends should play a role in the disposition of its earnings.

The issues involved in dividend payment draw on all of the Themes introduced above, plus tax policy, the current and expected state of the economy, the composition of the company's investor population, the relationship of founders to the company, and many of these matters interact in difficult-to-understand ways. The following discussion of dividend strategy is unavoidably lengthy and involved. Its relative length compared to the treatment of other potential dispositions of earnings should not be taken as an endorsement of adopting a dividend policy. Instead, it indicates how complicated the decision to pay dividends may be.

Editor: John Walker