What is a dividend policy?
It's a guideline outlining whether a company will pay profits to shareholders as dividends or instead retain its earnings. If a company does decide to issue dividends, the policy will say whether the dividends will be paid on an ongoing basis or less frequently.
Where have you heard about dividend policies?
Whether or not to issue dividends is one of the most important decisions made by a company’s board of directors. Dividends can be a steady source of income for investors, so a company's stance on dividend payments can be an important consideration when people are choosing which shares to buy.
What you need to know about dividend policies.
Most investors prefer a stable dividend policy, which means they receive a payment when company earnings are down as well as up.
It’s common for dividend payments to be reduced though. This could be because there’s a fall in output that isn't expected to recover in the foreseeable future, or it might be due to the need to retain more cash-in-hand for expenses. It’s less common for dividends to be increased as companies want to ensure their retained earnings will be sustained over the long term.
Find out more about dividend policies.
Read our definition of dividend payout ratio for more insight into dividend payments.