Question

If a company is planning a cut in its dividend how should it go about this?

Answer 1

Companies usually cut dividends due to factors like weakening earnings or availability of limited funds that are available to meet the dividend payments. Thus companies usually cut dividends in response to an economic downturn, when there are negative earnings, or when there is a serious threat to the financial health of the company. The company can also cut its dividends to have funds to finance its future growth or to allow for buybacks.

To go about the cut in its dividends a company should first outline the reason as to why it is cutting its dividends. The reason should be clear and lucid and should comprehensively explain all the rationale that is forcing the company to cut its dividends. Reduction in the payout rate is used by companies to cut its dividend payments.