Question

Discuss the process/steps involve when a company is planning to cut its dividend?

Answer 1

The process to cut dividend is not as such strict process which is followed but it is based on the evaluation of the business cash position and future capital expenditure needs of the company. When a company which has been paying dividend constantly for the past several years such businesses normally avoid cut in dividends because it sends negative signals. Even though if any company which has been paying dividend and it has decided to cut dividend, normally it is done after the annual earnings or quarterly earnings which have not been very good and the company does not have strong cash position and it also requires the funds for capital expenditure in near future. These all things are first evaluated by the internal senior management of the company and then the cut in dividend proposal is presented to board, once the board approves this then a formal press release is issued by the company where it explains in details reason behind the cut in dividend and future prospect of the company. The company also discusses these things in its annual general meeting.