# Aswath Damodaran argues dividend policy often misaligns cash returns and business needs [Canonical reading](https://escapemeridian.com/readings/aswath-damodaran-argues-dividend-policy-often-misaligns-cash-3c2afc8a) Aswath Damodaran’s post, published February 24, 2026, argues that dividend policy is dysfunctional at many firms because dividends can become rigid through inertia and pressure to follow industry peers. He says this can lead businesses to reject good investments or borrow to sustain dividends. Buybacks offer companies more flexibility, in his view, but neither buybacks nor dividends are inherently value-creating: buybacks can transfer wealth between shareholders, depending on their price and effects on leverage. Damodaran’s proposed guide is free cash flow to equity: cash available after taxes, reinvestment and debt payments. He argues that companies should not return more cash than they can afford, while recognizing that positive cash flow does not obligate a company to pay it out. His analysis of 2025 describes cash-return practices that do not always match that potential, including firms with losses that still pay dividends. He concludes that strategies built around dividends or buybacks are likely to go off the tracks, and that treating a stock as a bond will create disappointment. The post’s figures are referenced but not included in the retrieved text, so readers cannot inspect the charts alongside its reported results. Headline and summary by Escape Meridian, prepared by Luna from the attributed source. A source check is not independent confirmation of the source’s claims. ## Original source Aswath Damodaran · Article Original source date: Feb 24, 2026 (2026-02-24T18:45:00.003-05:00). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-11-08T02:48:22.991Z. First observed: 2026-10-23T21:19:43.632Z. Retrieved: 2026-10-23T21:22:16.713Z. - [Data Update 8 for 2026: Time for Harvesting - Dividends and Buybacks](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Limits Text as retrieved on October 23, 2026; originally published February 24, 2026. The retrieved text refers to figures and graphs but does not include them, limiting independent inspection of the displayed data. ## Open question What explains the gap between companies’ potential cash returns and the dividends or buybacks they actually make? ## Source-stated Damodaran argues that dividend policy is dysfunctional at many firms, in part because dividends are shaped by inertia and peer-group practices. > I will argue that dividend policy, more than any other aspect of corporate finance, is dysfunctional both for the firms that choose to return the cash and the investors who receive that cash. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source-stated Damodaran says buybacks are flexible in comparison with dividends, but their effects depend on price and leverage; they can transfer value between shareholders. > A buyback can increase, do nothing or decrease value per share, depending on the price at which it is done and its effects on leverage. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source-stated Damodaran concludes that investment strategies built around dividends or buybacks are likely to go off the tracks, and that treating a stock as a bond will create disappointment. > investment strategies that are built around cash return, whether they be dividends or buybacks, are likely to go off the tracks. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source-stated Damodaran reports that some companies paid dividends despite having losses, and argues that inertia or peer pressure can contribute to such policies. > Across the globe in 2025, almost 18% of money-losing companies paid dividends - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source and contributor context Aswath Damodaran · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Editorial provenance Version 1. Publication ID: 37c0edb3-4dae-1f00-277f-d3b93593078b. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: uncertain by anthropic/claude-opus-5.5 on 2026-11-08T02:43:42.946Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: 11f558a9b932051f934e8a68d479243c01597a41e656c4d49c90196f227bfa37. Source text hash: 1cc74ca307afecc4b15f0bafebb5a34a1312f26776aa1e5f46347861f33b569f. ## Revision and source-check history ### Version 1 — 2026-11-08T02:48:22.991Z Aswath Damodaran’s post, published February 24, 2026, argues that dividend policy is dysfunctional at many firms because dividends can become rigid through inertia and pressure to follow industry peers. He says this can lead businesses to reject good investments or borrow to sustain dividends. Buybacks offer companies more flexibility, in his view, but neither buybacks nor dividends are inherently value-creating: buybacks can transfer wealth between shareholders, depending on their price and effects on leverage. Damodaran’s proposed guide is free cash flow to equity: cash available after taxes, reinvestment and debt payments. He argues that companies should not return more cash than they can afford, while recognizing that positive cash flow does not obligate a company to pay it out. His analysis of 2025 describes cash-return practices that do not always match that potential, including firms with losses that still pay dividends. He concludes that strategies built around dividends or buybacks are likely to go off the tracks, and that treating a stock as a bond will create disappointment. The post’s figures are referenced but not included in the retrieved text, so readers cannot inspect the charts alongside its reported results. ## Original source Aswath Damodaran · Article Original source date: Feb 24, 2026 (2026-02-24T18:45:00.003-05:00). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-11-08T02:48:22.991Z. First observed: 2026-10-23T21:19:43.632Z. Retrieved: 2026-10-23T21:22:16.713Z. - [Data Update 8 for 2026: Time for Harvesting - Dividends and Buybacks](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Limits Text as retrieved on October 23, 2026; originally published February 24, 2026. The retrieved text refers to figures and graphs but does not include them, limiting independent inspection of the displayed data. ## Open question What explains the gap between companies’ potential cash returns and the dividends or buybacks they actually make? ## Source-stated Damodaran argues that dividend policy is dysfunctional at many firms, in part because dividends are shaped by inertia and peer-group practices. > I will argue that dividend policy, more than any other aspect of corporate finance, is dysfunctional both for the firms that choose to return the cash and the investors who receive that cash. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source-stated Damodaran says buybacks are flexible in comparison with dividends, but their effects depend on price and leverage; they can transfer value between shareholders. > A buyback can increase, do nothing or decrease value per share, depending on the price at which it is done and its effects on leverage. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source-stated Damodaran concludes that investment strategies built around dividends or buybacks are likely to go off the tracks, and that treating a stock as a bond will create disappointment. > investment strategies that are built around cash return, whether they be dividends or buybacks, are likely to go off the tracks. - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source-stated Damodaran reports that some companies paid dividends despite having losses, and argues that inertia or peer pressure can contribute to such policies. > Across the globe in 2025, almost 18% of money-losing companies paid dividends - [Supporting source](https://aswathdamodaran.blogspot.com/2026/02/data-update-8-for-2026-time-for.html) ## Source and contributor context Aswath Damodaran · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Editorial provenance Version 1. Publication ID: 37c0edb3-4dae-1f00-277f-d3b93593078b. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: uncertain by anthropic/claude-opus-5.5 on 2026-11-08T02:43:42.946Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: 11f558a9b932051f934e8a68d479243c01597a41e656c4d49c90196f227bfa37. Source text hash: 1cc74ca307afecc4b15f0bafebb5a34a1312f26776aa1e5f46347861f33b569f. ### uncertain — 2026-11-08T02:43:42.946Z — anthropic/claude-opus-5.5 Publication: 37c0edb3-4dae-1f00-277f-d3b93593078b attribution — pass: This is a single blog post by Aswath Damodaran in his own voice, part of his 2026 data update series. The reading attributes its arguments and figures to him throughout, and does not present his claims as established fact. > I will argue that dividend policy, more than any other aspect of corporate finance, is dysfunctional summary — uncertain: The reading captures the core thesis: sticky dividends, buyback flexibility, value transfer rather than value creation, free cash flow to equity as the guide, and the 'stock is not a bond' conclusion. Free cash flow to equity is explained. However, 'buybacks' (a company repurchasing its own shares) and 'leverage' (reliance on debt) are central and left undefined, with no definitions supplied. A non-finance reader may not follow the comparison. Smallest repair: one plain-language clause defining each term. Minor nuance: price drives the wealth transfer, while leverage affects value per share. > While buying back stock has always been an option available to US companies date — pass: originalPublished is 2026-02-24T18:45-05:00, which is February 24, 2026 in UTC as well, matching the reading. Kind is publisher-page, so no archive disclosure is needed. There is no hindsight framing, and forecasts are not presented as outcomes. The page was modified after publication (October 2026), but the reading relies only on the post's core body, which is plainly part of the original piece. support — pass: Each claim matches the source text: dysfunction driven by inertia and me-tooism; dividends causing firms to turn away good investments or borrow; buyback flexibility; value transfer; free cash flow to equity; 18% of money-losing firms paying dividends; and the conclusion. The page was edited after publication, but the cited passages are integral to the original argument. The reading implies no unsupported benefits or costs. > a firm may turn away good investments or borrow much more than it should because it feels the need to sustain dividends media — pass: No media was selected and no verified candidates were supplied, so nothing was misidentified. The reading also notes that the post's charts are missing from the retrieved text. ## Recorded references Explicit citations in public readings and public file attachments to this reading. Shared topics are not citations. Other artifact types need an explicit reference adapter. No public references recorded here yet. [Reference data (JSON)](/readings/3c2afc8a4bf77dbd2e28ff74a4608b56166d1f90e9088dada4b394303e571fcc/references.json) ## Corrections and challenges [Send a correction or an opposing source](https://escapemeridian.com/corrections/) [JSON record](https://escapemeridian.com/readings/aswath-damodaran-argues-dividend-policy-often-misaligns-cash-3c2afc8a.json)