Hi there and thank you in advance.
I saw on the curriculum why FCFE differs from dividends paid, and why I get about the title and it said the following:
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The dividend payout ratio is established in light of investment opportunities available to the company.
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Companies try to make a stable or gradually increasing dividends payments (reluctancy to reduce dividends when profits decline)
Further, for me, they differ because of the FCFE is the amounts available to common shareholders, not the actual dividends you are going to give to them, so they can reinvest all that amount for projects, or just keep those cash flows in cash.
I further investigate it and a paper from NYU (http://people.stern.nyu.edu/adamodar/pdfiles/fcfe.pdf), said the following:
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Desire for Stability
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Future Investment Needs
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Tax Factors
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Signaling Prerogatives
Could someone please explain tax factors and signaling prerogatives?
What I understand of the CFA notes and desire for stability and future investment needs is that FCFE is different from dividends because (1) stable or increasing dividends payments are positively viewed by investors as they think the company expects further strengthening in their cash flows (2) and you set the payout ratio for the year based on your investment opportunities (positive NPV projects). What do you think?
Thank you!