The Story that Dividends Tell | Value Research The history of dividends is a good window into companies' financial strength & can help build an investment case
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The Story that Dividends Tell

The history of dividends is a good window into companies' financial strength & can help build an investment case

Dividends are a proxy for a company's performance. When a company pays good dividends, investors feel confident about the company's future. If a company can't pay higher dividends, it at least tries to keep the dividend payout same as before. This is because cutting it down or not giving a dividend altogether may send a negative signal to the investors.

Dividends may be calculated through dividend per share and dividend-payout ratio. The dividend-payout ratio is the per cent of profits distributed as dividends.

We have compiled two sets of companies based on dividends. The first list has the companies where the dividend-payout ratio as well as the dividend per share have gone down in the last five financial years. While it is obvious that some of these companies have witnessed a fall in profitability and hence reduced the dividend payout, many have reduced the payout despite a rise in earnings. For example, Sun Pharma reduced the payout ratio due to acquisitions and expansions.

The second list mentions the companies which have increased the dividend-payout ratio year on year in the last five years.

Knowledge of the dividend-payout patterns could be an important parameter for building the investment case.


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