In Spite Of Falling Profits Companies Tend To Pay Stable Dividends Or Gradually Raise Dividends. Why ?

Because they want to encourage future investment. Dividends are paid to the people who have already invested in the company (shareholders). The company needs to keep up its image as a good investment (one that will pay people good dividends, and maintain a good share price). The last thing you want to do is to encourage shareholders to pull out their money, and to discourage future investors.

Okay, so you might argue that the shareholder money is already paid. But shares are one of the companies assets. If the share price plunged, the company would be able to borrow less in the future. Companies often manage/sell some of their own shares, too. So companies generally want stable or rising share prices.

On top of that, companies exist to pay dividends. That is their role. Sometimes they do reduce dividends to increase investment, but this can often only be done by vote of the shareholders, and shareholders rarely go for the idea.

Finally, when we say "falling profits" -- the company is usually still in healthy profit. It's just less profitable than in the past. Companies will not usually pay out dividends that are so large that they interfere with the company being profitable the next year; that would be irresponsible management, too.

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