A. Explanation

This Provision provides that a company should have, and should disclose, a dividend policy.

As investors, shareholders want to see returns on their investments. For many, dividends are a key part of these returns.

In addition, knowing what type and level of dividends they could expect in the future may affect how investors plan their cash flow and view the value of the company. In turn, this influences their investment decisions.

However, companies may be reluctant to have, or to disclose, a dividend policy as they do not want to set expectations they may be unable to meet. Instead, they want to have the flexibility to declare dividends based on the actual performance of the company, and the circumstances of the day.

That said, a clear dividend policy could help stabilise the company’s share price. It could also ensure that the commercial interests of investors attracted to invest, or who have already invested, in the company are aligned with the dividend policy.

MR 704(24) and CR 704(23) require the company to announce any dividends recommended or declared, and if any dividends vary materially from the previous corresponding period, to state the reasons for the variation. If no dividend is declared, this must be announced together with the reasons for the decision.

Where a company has the profits and cash flow to declare dividends but chooses not to, it could, for instance, indicate that the funds are needed to reinvest in the growth of the company, and to indicate which areas such investments are likely to be in.

B. Practice Guidance

• Practice Guidance 11: Shareholder Rights and Engagement

C. Related Rules and Regulations

• MR 704(24) and CR 704(23).
• MR Appendix 7.2 and CR Appendix 7C.

D. CG Guides

• Board Guide 7.2: Shareholders [Stakeholder Engagement].

E. Related Articles

• Nil.