3 ms·

It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit l

by elric 7y ago

It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.

Ididntdothis 7y ago
Is the promise of dividends binding? I don’t think so.
- brewdad 7y ago
  To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price. C'est la vie.
  - nradov 7y ago
    Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market. Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
- anonymousDan 7y ago
  It's not. The stock price will likely take a hit, but such is life.
benburleson 7y ago
So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.
- chrisseaton 7y ago
  > lining investor pockets Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
  - elric 7y ago
    Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me. Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
  - calcifer 7y ago
    I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
    - 1123581321 7y ago
      I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
    - strictnein 7y ago
      A semi-common retirement setup is to buy relatively stable stocks that have good dividends and supply you with a 4-6% annual return.
    - chrisseaton 7y ago
      > I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? Many pension funds pay pensions by taking a dividend from investments.
KillerDiller 7y ago
It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place. Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.

by elric 7y ago

Ididntdothis 7y ago

Is the promise of dividends binding? I don’t think so.

brewdad 7y ago
To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price. C'est la vie.
- nradov 7y ago
  Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market. Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
anonymousDan 7y ago
It's not. The stock price will likely take a hit, but such is life.

benburleson 7y ago

So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.

chrisseaton 7y ago
> lining investor pockets Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
- elric 7y ago
  Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me. Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
- calcifer 7y ago
  I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
  - 1123581321 7y ago
    I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
  - strictnein 7y ago
    A semi-common retirement setup is to buy relatively stable stocks that have good dividends and supply you with a 4-6% annual return.
  - chrisseaton 7y ago
    > I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? Many pension funds pay pensions by taking a dividend from investments.

KillerDiller 7y ago

It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place. Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.