Corporate dividend policy revisited

Abstract

Purpose – The purpose of this paper is to provide an overview and synthesis of some important literature on dividend policy, chronicle changing perspectives and trends, provide stylized facts, offer practical implications, and suggest avenues for future research. Design/methodology/approach – The authors provide a survey of literature surveys with a focus on insights for paying cash dividends. Findings – The analysis of literature surveys on dividend policy provides some stylized facts. For example, US evidence indicates that the importance of cash dividends as a part of investors’ total returns has declined over time. Share repurchases now play an increasingly important role in payout policy in countries permitting stock buybacks. The popular view is that dividend policy is important, as evidenced by the large amount of money involved and the attention that firms, security analysts, and investors give to dividends. Firms tend to follow a managed dividend policy rather than a residual dividend policy, which involves paying dividends from earnings left over after meeting investment needs while maintaining its target capital structure. Certain determinants of cash dividends are consistently important over time in shaping actual dividend policies including the stability of past dividends and current and anticipated earnings. No universal set of factors is appropriate for all firms because dividend policy is sensitive to numerous factors including firm characteristics, market characteristics, and substitute forms of dividends. Universal or one-size-fits-all theories or explanations for why companies pay dividends are too simplistic. Practical implications – The dividend puzzle remains an important topic in modern finance. Originality/value – This is the first a survey of literature surveys on cash dividends.