Glossary

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Dividend policy

As a general rule, joint-stock companies pay out a portion of their profits to shareholders. This portion, expressed as a percentage, is referred to as the “payout ratio”. In keeping with economic principles, senior management decides what portion of the company’s profits should be retained. Companies with a low payout ratio or pay no dividend at all keep a larger portion of the profit in order to, for example, finance research, development, production and/or marketing. Over the medium to long term, those investments can pay off for shareholders in the form of a higher share price, thereby compensating for the lack of a dividend. Companies endeavour to maintain a consistent dividend policy with the goal of being able to maintain the annual dividend at least at the prior-year level, regardless of the current course of business.

See alsoDividend
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