[jagjit]

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.

[sokoloff]

You're making a distinction without a difference.

If not paid as a dividend, where else would that profit go but to cash in the bank at time T+1? (Technically, it's free cash flow that goes to cash in the bank, but the difference isn't meaningful here.)