Wise Investors and
Dividend Policies

This is the issue that takes us to what is most likely the most vital part of dividends but that is normally not discussed and this has to do with regularity or dependability. An investor that is on the look out will make sure to plan his contacts and he will be sure to look into the future and try to see what could be done and what could not be down with his income. It is possible he might not be interested in increasing his income right away but he will want reassurance against decreased income and any unexpected interference or occurrence of his strategy that this could bring about. Besides this, this kind of investor will also want to make his decisions between companies that should bring back a good amount or all of their earnings and the ones that might grow at a good but slower rate and need to bring back an amount that is smaller.

Due to these things, the people that set intelligent policies on stockholder relations and those that enjoy the high price earnings ratio for their shares that those policies help carry out normally prevent the disorderly way of thinking that is typical of a lot of corporate treasurers and financial vice presidents. What often occurs is that they set a dividend policy and do not change it but they will inform the stockholders what this policy is and might noticeably change the dividend but usually not the actual policy.

The policy that is set up will depend on the percentage of earnings that need to be retained in the company to allow maximum growth. In the case of companies that are younger and growing very quickly, it is possible that no dividends at all will be paid for a certain amount of years. Then after the assets have reached the point where the depreciation flow back is higher, from twenty five to forty percent of profits is then paid out to the stockholders. In the case of older companies the pay out ratio that is given changes depending on the company. Nonetheless, in no way will the rough percentages rule the exact quantity that is being paid out and this means that it would make the dividend of each year different from the one of the year before and this is exactly what the stockholders do not want to do because it makes it difficult if not impossible to make independent long range plans on their own. What the stockholders want is to set a certain quantity that are near these percentages and that are paid out in a regular form, which can be every three months, every six months, once a year etc. When earnings start to increase, the quantity will every once in awhile, be raised to bring the pay out to the previous percentage. But this will only be done when the funds are otherwise available for taking advantage of all the excellent opportunities for growth that the management is taking care of and there is a lot of reason to trust that the new regular rate can be kept from this time on, after letting for all responsible possibilities of a following downtown in a business or the look of extra opportunities for growth.

The managements that have dividend policies that are the most approved by perceptive investors are the ones that believe that a dividend should be increased with a lot of caution and only in the case when it is almost sure that it can stay there. In the same way, only in extreme emergencies and circumstances should the dividends be reduced. It is shocking how many corporate financial officers there are that will say yes to paying one shot extra dividends. This is done even though these kind of unexpected extra dividends in most cases do not leave a permanent impact on the market price of their shares, and this should show how opposing those policies are to the wishes of long range investors.