S
Shackles
Guest
Would you pay a dividend if your profit was negative – discuss why.
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Would you pay a dividend if your profit was negative – discuss why.?
B
bubba
Guest
It is possible that a company would continue to pay a dividend even though the company is not profitable. The last two answer were a good explanation of why a company would.
Expanding upon their answer: There is a difference between free cash flow and profits. A company may have a paper loss (resulting from depreciation of assets, placing pension obligations as a liability, etc) but still have a free cash flow. If the business is not re-investing the free cash flow giving it to the owners (stock holders) is the logical choice.
For example: back in the 90's The big 3 automotive companies all assumed their defined benefit pension as a liability. This liability cause each to have a huge profit loss. Cash flow was unaffected and they continued to pay dividends.
Expanding upon their answer: There is a difference between free cash flow and profits. A company may have a paper loss (resulting from depreciation of assets, placing pension obligations as a liability, etc) but still have a free cash flow. If the business is not re-investing the free cash flow giving it to the owners (stock holders) is the logical choice.
For example: back in the 90's The big 3 automotive companies all assumed their defined benefit pension as a liability. This liability cause each to have a huge profit loss. Cash flow was unaffected and they continued to pay dividends.
D
David M
Guest
It depends on the nature of the loss. If it was a one time event based on extraordinary circumstances, yes I would. If the loss was an ongoing loss which was expected to continue for a while, I would not.
V
Vicky
Guest
NO!
A dividend is a portion of a company's profit paid to common and preferred shareholders.
If there is no profit (i.e. profit was negative) there is no question of paying dividend.
A dividend is a portion of a company's profit paid to common and preferred shareholders.
If there is no profit (i.e. profit was negative) there is no question of paying dividend.
J
jueyanz
Guest
Some companies might, because they declare and keep a dividend every quarter/ year. Keeping the dividend constant reduces risk for the investor and may boost stock prices, if the company can afford it. Many companies offer constant dividends, regardless of profit or loss.
H
hobbit
Guest
A board of directors would have to think very long and hard about suspending a dividend. The signal this could send to financial markets could be more devastating to long term cash flow than the cash pay-out If they wish to raise cash in the future it would be much tougher in both debt and equity markets.
As has been noted, the share prices would take a hit. This could make a hostile take-over much easier.
These reasons are more appropriate if losses are short-term
or extra-ordinary and a return to profit is expected or operating profits continue. If the survival of the company is in question all bets are off and the dividends would disappear for sure.
As has been noted, the share prices would take a hit. This could make a hostile take-over much easier.
These reasons are more appropriate if losses are short-term
or extra-ordinary and a return to profit is expected or operating profits continue. If the survival of the company is in question all bets are off and the dividends would disappear for sure.