The quality and quantity of dividend policy and practice disclosures has improved, according to a study “Disclosure of dividends –policy and practice“ conducted by the FRC’s Financial Reporting Lab (Lab).
The Lab assessed the extent to which disclosure practice in FTSE 350 companies had changed. It identified developments in how companies describe their dividend policies, the risks to dividend payments and the factors that were considered in setting the policy. Fifty-eight per cent of FTSE 100 companies now disclose information about distributable profits or distributable reserves, an increase from 40% in 2015. Progress in the FTSE 250 has been less significant with 30% of companies making such disclosures.
Phil Fitz-Gerald, Director of the Financial Reporting Lab, said,
“We are pleased that companies have responded to what investors asked for in the Lab’s report findings in 2015. Investors find this information particularly useful to evaluate the board’s stewardship of the company and assess prospective dividends.
“We urge more companies, particularly those outside of the FTSE 100, to take on board the findings of the original Lab report to improve their disclosures in the coming reporting season.”
The Lab recommends four ways in which disclosures could be improved:
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Identifying the explicit links between the dividend policy and the potential impact of the company's principal risks and viability;
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Enhancing the disclosure on any constraining factors to dividend payments;
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Explaining more fully what the policy means in practice; and
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Clarifying where profit is generated in the group, how profits might flow to the top of the company and any relevant constraints (current or potential) to that flow.
Full press release
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