The Benefits of a Quarterly Dividend Policy

The saying Cash-is-King has been used quite some while. But many companies have not yet fully adapted their course to benefit from this wisdom. The article "Dividend Policy - a Long-Term Investment," states that the dividend policy of a company shouldn't be used to settle cash-flow problems. Some companies at the time -- and again today - thought that they could save on dividend payments, but they forget at what costs.

In most businesses we could see a change towards a more aggressive cash-flow policy. Bi-monthly invoices from the utilities company changed to a monthly invoice taking into account the less accurate measurement of the energy usage. But in that area all that could have been done has been done; there is little margin left for efficiency. Yet in dividend policies, only a very few companies have turned to a quarterly dividend-payment. This is obviously a measure that immediately benefits the company.

First of all the cash-flow involved can be managed better. It is easier to save for a reduced quarterly payment rather than to have a larger amount once or twice a year. These are the basics of money management and best-practices in treasury.

Another advantage is that the relation with shareholders can be improved. Now the shareholder can trade easier without losing the dividend payments as they are only once or twice a year. But if the dividend payments are spread over quarters it is easier to miss a payment. So the shareholder is triggered to hold the stock longer.

? 2009 Hans Bool