Cash flow management - dividends in the spotlight

For Eurotunnel shareholders, it has been a long wait. But they have finally received a dividend, some 22 years after the Channel Tunnel was opened. However, shareholders of other quoted and private companies may not be so lucky…

Weighed down by huge debts, it was only last year that Eurotunnel recorded its first profit. Now those patient shareholders have been rewarded with a dividend, albeit a modest one at 4 euros a share.

However, for other companies, the annual dividend is under threat. The Guardian reports that dividend payments from British companies will fall at least 30% during 2009, “robbing” investors of £18bn. “Cash is king” is the mantra being repeated in boardrooms around the land, and the obvious decision is to cut or even remove the shareholder dividend payment.

Remember that dividends are a substantial cash outflow for many quoted and private companies. External shareholders in quoted companies look to dividends as one part of their financial return (the other being an increase in the capital value of the shars held). For private companies, payment of dividends to shareholders (who are usually also the directors) is a tax-efficient method of remuneration.