Reference no: EM132833682

The COVID-19 pandemic has had a significant impact on the dividend policies of companies around the globe. The amount paid out by big companies to their investors plummeted between April and June as firms cancelled or cut their dividends to conserve cash during the coronavirus pandemic crisis. Dividends were most affected in Europe and the UK. In the UK payouts fell by more than 50%. Oil giant Shell slashed its dividend in April, the first time it had done so since the second world war, following a collapse in global oil prices, while banks HSBC and Lloyds were among those that coordinated a decision to halt payments for 2019 and 2020 following talks with the Bank of England.

The current situation does not mean that no profit distributions can take place. However, there are important elements to take into account. As a consequence of the corona virus outbreak, the financial position of many companies may be compromised. Management currently remains in uncertainty to what extent the corona virus will impact their business. This uncertainty may also affect the annual profit distribution and companies may need to revisit their dividend policy. Many (listed) companies have already reported or cancelled their yearly shareholders' dividend. This does not necessarily mean that no profit distributions can take place, however there are important elements to take into account and conditions that have to be met when considering to pay out dividends.

Required:

a) Explain the factors that may encourage companies to continue paying dividends.

b) Describe how pandemic COVID-19 trigger a dividend drought for investors.

c) Identify the sectors been most affected by dividend cuts.

d) In your opinion, why are companies adjusting their dividend policies in recent months?