Which are better: dividend payers or non-dividend-payers?

If a company makes a profit at the end of the year, it basically has four choices for using that cash. First, pay it as dividends or buybacks, second, reinvest in the business, third, if there is any debt on books then pay it off or fourth, retain the balance sheet in cash or investments. Of course, companies can choose to do a mix of all. However, whichever decision the management takes ultimately, it should benefit the shareholders. If the company decides to pay dividends instead of reinvesting in business, it should be based upon sound logic that the management is not able to find such investment prospects that will generate a higher return than the cost of the capital. However, investors in India perceive dividends as an important part of investing in stocks. That's why more than 70 per cent of companies (out of BSE 500) pay at least some dividend every year. And this brings us to ou