Cash today and growth tomorrow

DIVIDENDS

High yields relative to those on other asset classes, and a need to engineer strong top-line sales growth, suggest companies will start deploying more of their accrued cash towards growth rather than dividend distribution policies in the years ahead says Richard Batty, global investment strategist, Standard Life Investments. But what is the outlook for dividends?

What is changing about corporate behaviour, what is the outlook for dividends and what are the other uses of companies’ retained cash? The drivers of dividends include a number of factors: profits growth – the sharp pick-up in profits is forcing managers of businesses to decide how to deploy the associated increase in cashflow that is being generated; risk appetite – the extent of management risk appetite will determine how accrued cashflow is distributed; opportunities to grow businesses – high cash balances can be put to work if management sees growth opportunities via capital spending...