When a company starts paying a dividend to its shareholders, it is often seen as a signal of confidence that the company is at a stage where it can produce stable and growing earnings and cash flow. But when a tech growth company like (NASDAQ: MSFT) starts paying a dividend, it's often seen as a sign that the high-growth days are over. That's a signal for some that it's time to invest elsewhere.

In reality, a dividend is mostly just a signal that management may not see as many investment opportunities, so instead of wasting the money or letting it sit in its coffers, they return funds to shareholders. That should be a signal for investors to get into the stock.

When talking about tech companies, particularly software companies, this is the point where their high operating leverage generates more and more revenue every year without a significant increase in operating expenses. So when a tech company starts paying a dividend, it's more often a signal that it's reached "escape velocity" so to speak, and that leverage will start producing a lot more free cash flow and earnings well into the future.

Continue reading

Source Fool.com