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Why is it rational to pay out a dividend?
First, you need to understand that not  every investor's goals are the same. Some investors are investing for income. They want to invest in a profitable company and use the profit from the company as income. If that investor invests only in stocks that do not pay a dividend, the only way he can realize income is to sell his investment. But he can invest in companies that pay a regular dividend and use that income while keeping his investment intact.  Imagine this: Let's say I own a profitable company, and I offer to sell you part ownership in that company. However, I tell you this upfront: no matter how much profit our company makes, you will never get a penny from me. You will be getting a stock certificate - a piece of paper - and that's it. You can watch the company grow, and you can tell yourself you own it, but the only way you will personally benefit from your investment would be to sell your piece to someone else, who would also never see a penny in profit. Does that sound like a good investment? The fact of the matter is, stocks in companies that do not distribute dividends do have value, but this value is largely based on the potential of profits/dividends at some point in the future. If a company vows never ever to pay dividends, why would anyone invest?  An investment would be more of a donation (like Kickstarter) at that point.  A company that pays dividends is possibly past their growth stage. That doesn't necessarily mean that they have stopped growing altogether, but remember that an expansion project for any company does not automatically yield a good result. If a company does not have a good opportunity currently for a growth project, I as an investor would rather get a dividend than have the company blow all the profit on a ill-fated gamble.