Can we adjust our intentions in relation to final dividends?

Published on
1 min read

Companies are rightly reconsidering whether it is appropriate to pay dividends in the current climate.

An interim dividend is one which is declared by the board of directors and which only becomes a binding obligation to shareholders once it is actually paid to shareholders.  A final dividend is one which is recommended by a board of directors to the company’s shareholders, which the shareholders may then approve by an ordinary resolution.  A final dividend therefore becomes a binding obligation to shareholders once it has been approved by shareholders.

As can be implied from the comments above, an interim dividend could be cancelled by the board at any time up to the time it is paid whereas a final dividend can only be cancelled by the directors, without the company incurring any liability to the shareholders, up to the point the shareholders resolve to approve the final dividend.

In usual times, a board will rarely adjust their dividend intentions once they have been announced to the market because of the great negative impact to investor relations and the difficulty of sufficiently communicating the cancellation to the market.  However, in the current climate some companies have taken steps to cancel previously announced dividends and it is possible that this is something that more companies consider over the next few difficult months..

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