03-21-2016, 12:41 PM
(03-21-2016, 12:31 PM)Rasec Wrote: I agree with you Kerim, imagine Google for example, if they go down the dividends lane, they will be expected to keep paying those dividends, and increasing them every year, from now, until the end of times. It's a really long term commitment.
This is for the companies following the American style of increased dividend payments. Nothing is stopping a company, for example Google as you used in your example, to adopt a system similar to what a lot of European companies use. The dividend policy doesn't have to be "ok $1.00 this year and steady increases of 5% per year", it can be something like:
"The objective of the Board of Directors is that, in the long term, the dividend should be equivalent to 33–50 percent of income after standard tax, but always taking into account the company's long-term financing requirements."
That is a direct quote from one company that I've set my eyes on. And surprise surprise, even with this model it's possible to have a pretty steady stream of increasing dividends (which this company has done, though there have been years with no increases in div. payments) as long as the EPS keeps going up, which is what we want anyway. As you can see they have a 15 percentage point zone to move in so they can easily adjust their payments in the best interest of the company. (which, in the long run, will be the best interest of the shareholders too)