Investment Association calls for greater transparency on dividends

Released 25 May 2019

The Investment Association (IA) has called on companies to reveal greater transparency behind their dividend policies, but setting out their ‘distribution policy’.

The call comes after the IA has undertaken a research project on behalf of the Department for Business, Energy and Industrial Strategy, which was ‘designed to shine a spotlight on companies given the concern that more were moving to paying interim dividends which are not subject to a shareholder vote.’

The IA explains ‘the research found that more than one in five (22%) of FTSE listed companies that pay dividends are not holding annual votes on the payment of the final dividend or are paying only interim dividends.

‘However, it also revealed that there are often legitimate reasons for that decision, such as meeting a demand from investors to receive a regular income stream in the form of quarterly payments, and therefore the report recommends a distribution policy that gives shareholders transparency on how dividends will be paid. The report also found that among the top 20 FTSE companies, 12 had paid dividends without holding a shareholder vote.’

The IA has indicated that it will work on developing best practice guidance to be released in Autumn 2019, and it will work with the Government to discuss whether a shareholder vote should be mandatory for either the policy or the issue of any dividends.

The Practical Guide to the Companies Act provides guidance on dividends and other distributions from limited companies, and will be updated if there is any change in the law following the discussions.

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