In today’s briefing:
- Is Progressive Dividend Distribution the Result of Half-Baked Cash Allocation?
Is Progressive Dividend Distribution the Result of Half-Baked Cash Allocation?
- Companies that previously paid lower dividends compared to their cash on hand often adopt DOE or progressive dividends. In other words, they have too much cash on hand.
- Both DOE and progressive dividends would suggest that management of free cash flow solely lies with the company, and that only cash exceeding a certain level is returned to shareholders.
- Setting a predetermined limit on the allocation of free cash flow may hinder more dynamic cash flow allocation and risk-taking, resulting in limited shareholder returns.
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