Is there danger in dividends?

Recently, a friend of mine, Leo, was discussing his portfolio. He said he only invests in companies paying dividends and asked what I thought.

On the surface, the question is simple. A dividend is a “cash bonus” shareholders receive from company’s sharing part of their profits. That certainly sounds good. However, like many things in the world of finance it requires additional thought.

Regardless of the industry, the job of every business leader is to make optimal decisions. As such, they are the Chief Capital Allocator. Any business leader must assess cash flowing through a business and determine what to do with the profits.