> so paying dividends would be sending money out to shareholders, it gets reduced by taxes, and then the shareholders have to figure out what to do with it that would return as much as Apple would. The best return would thus be likely re-investing it in Apple shares.
Your answer is essentially fine, but:
1) There's no reason you should assume an investor would re-invest dividends in Apple as opposed to AcmeCorp. The resulting portfolio might be less risky than either all-Apple or all-Acme.
2) It doesn't take into account that investors are also consumers, i.e., they might choose to not re-invest the dividends at all, and instead "buy stuff". For instance, a retiree might use it to pay the rent.
3) Transaction costs for selling a stock vs receiving a dividend.
Indeed companies not spending or distributing cash is slowing US growth too. There are macrodisadvantages. And the complete aversion to paying taxes does not help the budget deficit.
Your answer is essentially fine, but:
1) There's no reason you should assume an investor would re-invest dividends in Apple as opposed to AcmeCorp. The resulting portfolio might be less risky than either all-Apple or all-Acme.
2) It doesn't take into account that investors are also consumers, i.e., they might choose to not re-invest the dividends at all, and instead "buy stuff". For instance, a retiree might use it to pay the rent.
3) Transaction costs for selling a stock vs receiving a dividend.
/nitpick