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I know that Apple, for example, began paying dividends in 2012. Can a company do the opposite, namely stop paying dividends suddenly?

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    Apple also stopped paying dividends in 1995. – Michael May 18 '16 at 13:41
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    Sure, it happens all the time for various reasons. – Fattie May 18 '16 at 15:58
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    Are you really asking whether you will get some notice that they won't be paying a dividend? – Joe May 18 '16 at 17:47
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    @BaardKopperud Can the board decide to pay out profits to the large shareholders without paying dividends to the rest? – Keegan Jay May 19 '16 at 13:50
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    @JayKeegan Errm the authorities tend not to like that - there are laws to protect small investors in good stock markets – Pepone May 25 '16 at 19:55
33

Yes. Companies increase, decrease, start paying and stop paying dividends when they think it appropriate.

If a company has been going through some problems and makes a loss, or even a large decrease in profits, they can choose to stop paying dividends until things improve. Many companies did this during the Global Financial Crisis of 2007-08.

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    @coteyr: "More people buying our stocks" does not mean raising capital. Issuing new stock raises capital, but most people who buy stocks buy them on the open market from other investors. In fact, paying dividend reduces the capital, and it's weird to see a company both raise and reduce capital at the same time. Either a company has more cash than it needs for its plans (pay dividend), or it has more plans than capital (issue new shares) – MSalters May 18 '16 at 15:00
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    @Coteyr, part of the consideration for some people is a dividend payment. PLENTY of stocks have soared in price without ever paying a dividend. It is clear you have no idea how any of this works. – quid May 18 '16 at 17:08
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    @publicwireless, Sure, at some point an investor will want to see a return on their investment. Companies have value and that value fluctuates based on a host of factors. The greater fool theory involves buying an unjustifiably high priced security to sell it at yet a higher unjustifiably high price to an even more foolish person. There are plenty of unjustifiably high priced dividend paying companies too. Plenty of companies justifiably rise in value, that rise in value includes some kind of expected future liquidity event which may or may not be a dividend payment. – quid May 18 '16 at 18:55
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    @publicwireless, yes, liquidating the enterprise would be a liquidity event. Selling the entire company could be a liquidity event. There are loads of business where sale to a larger entity is the endgame. Not everything is dividend based. Singularly focusing on dividends when valuing an enterprise is foolish and dividend payments are absolutely not the only reason a stock goes up in price. – quid May 18 '16 at 20:38
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    @publicwireless - traders, of which there are many different types, don't usually buy and sell stocks for dividends. If dividends was the only reason for investing/trading then there would be no FX or Commodity Markets. – Victor May 18 '16 at 21:14
2

Dividends are supposed to be paid from company profits (in the current or previous financial years), there are nuances around what profits mean from country to country, but the link is the UK definition from the HMRC. Profits from previous financial years are commonly called retained earnings.

There are a few items around this

  • If the company is not currently profitable and has no retained earnings, there will be no dividend
  • If the company is currently profitable or has retained earnings, they will usually choose to reinvest a certain proportion of their profits back into the business for development. This is discretionary.
  • If the company is currently profitable or has retained earnings, there can be multiple classes of share (in some countries) that attract different levels of dividend, so again you may have a class "B" share that gets no dividend, while the class "A" shares receive a dividend.
  • If the company is currently profitable or has retained earnings, then finally, the class of share you have may get a dividend.
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    AFAIK, companies may also pay dividends out of retained earnings (past profits not paid out), even though current/recent periods may have been ones in which losses were incurred. – Chris W. Rea May 18 '16 at 15:01
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    As per @ChrisW.Rea's comment, the first sentence is plain wrong, sorry. Companies are more likely to pay dividends if they are profitable, but there are certainly companies that aim to pay a constant stream of dividends whether a particular quarter or year was profitable or not (and therefore retain earnings in good years), as well as highly profitable companies that pay dividends only very rarely or not at all. – Stephan Kolassa May 19 '16 at 8:11
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    Penn Central kept paying dividends until bankruptcy - they weren't making any profit, obviously. – Agent_L May 19 '16 at 9:43
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    Thanks, this is better. I have changed my downvote to an upvote. – Stephan Kolassa May 19 '16 at 10:13
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    At least in US, if they distribute more than current+retained earnings it is technically return of capital rather than dividend; this changes the timing of taxes, but usually not the amount. And this doesn't alter any effect on the company finances and valuation/stock. – dave_thompson_085 May 20 '16 at 17:02

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