Hmmmmm. This would explain it - but for the fact that dividends are generally supposed to be paid out of profits not out of cash in the bank. Aren't dividends a

Hmmmmm. This would explain it - but for the fact that dividends are generally supposed to be paid out of profits not out of cash in the bank. Aren't dividends a way of sharing profits with shareholders, not sharing the net worth of the company. If a company is not making any profits, it should not pay any dividends. Your hypothetical example though is a very useful way of understanding these things. Infact it just helped me understand clearly why companies should keep as little cash as possible - unless they can generate returns better than atleast govt bonds.