The report revisits key themes from the Lab's previous report on the disclosure of dividend policy and practice. 

It reiterates the message that disclosure around the dividend policy and the decisions that a company makes in determining whether to pay a dividend are important to investors and other stakeholders.  However, in light of the current economic environment, investors and other stakeholders expect companies to consider, and disclose how they have considered, the wider macro-economic environment (such as higher interest rates and inflation on the business, cost of living pressures on employees, support for customers), when determining whether to make a distribution.  

The report identifies three factors that are changing the context in which investors are assessing dividend policy.  These are:

• Macro: How does the policy reflect Macro factors such as economic slowdown, inflation and interest rate environment, etc
• Market: How does the policy reflect market factors such as peer comparison, the need to respond to industry trends, etc.
• Entity: How does the policy reflect company factors such as the need to invest in green transition, financing and debt repayments, staff and customer support, etc.

In concluding the report states:

High-quality disclosure helps investors assess dividends as a source of consistent and sustainable returns. However, returns are always considered in the context of the wider economic environment, and not just on year-on-year basis. Better disclosure reflects and adjusts to the changing context. Whilst many companies have promised a progressive dividend policy, investors also expect disclosure to progress.

The report comes at a time when proposed new reporting regulations will legally require in-scope companies to disclose their dividend policy as well as profits available for distribution as highlighted in the Government’s Response to its consultation on the March 2021 White Paper on ‘Restoring Trust in Audit and Corporate Governance’.

Please click to access Insight report: Disclosure of dividends revisited on the FRC website.