The primary duty of the company's executives is to deploy capital effectively. Paying out dividends in many cases is a sign of good management since it makes it

The primary duty of the company's executives is to deploy capital effectively. Paying out dividends in many cases is a sign of good management since it makes it clear they understand the limitations of what they can do with deploying capital internally. The assumption is that unless they can earn more on the capital than shareholders could by investing it elsewhere, they should return it to shareholders.