Pike Robert, Neal Bill. Corporate finance and investment: decisions and strategy

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Chapter 16 Long-term finance 445

Net current assets 22

Long-term debt at 12% (20)

Net assets 122

Financed by

Ordinary shares (50p par value) 60

Reserves 62

Shareholders’ funds 122

Burnsall’s profit before interest and tax in 1994–95 was 16 per cent of sales, after deducting depreciation of

million. The depreciation charge for 1995–96 is expected to rise to million. Corporation tax is levied at

33 per cent, paid with a one-year delay. Burnsall has an established distribution policy of raising dividends

by 10 per cent p.a. In 1994–95, it paid dividends of million net.

You have been approached to advise on the extra financing required to support the sales expansion.

Company policy is to avoid cash balances falling below 6 per cent of sales.

Required

(a) By projecting its financial statements, calculate how much additional external finance Burnsall must raise.

Notes:

1 It is not necessary to present your projection in FRS 1 format.

2 You may assume that all depreciation provisions qualify for tax relief.

(b) Offer advice as to the appropriate method of financing for Burnsall’s sales expansion.

(ACCA)

5 The managing director of Lavipilon plc wishes to provide an extra return to the company’s shareholders and

has suggested making either:

(i) a two for five bonus issue (capitalisation issue) in addition to the normal dividend.

(ii) a one for five scrip dividend instead of the normal cash dividend.

(iii) a one for one share (stock) split in addition to the normal dividend.

Summarised Balance Sheet of Lavipilon plc (end of last year)

Fixed assets 65

Current assets 130

Less: current liabilities (55)

Net current assets 75

Total assets less current liabilities 140

Less: Long-term liability

11% debenture (25)

Net assets 115

Capital and reserves:

Ordinary shares (50 pence par value) 25

Share premium account 50

Revenue reserves 40

Shareholders’ funds 115

The company’s shares are trading at 300 pence before the dividend is paid, and the company has mil-

lion of the (post-tax) profit from this year’s activities available to ordinary shareholders, of which million

will be paid as a dividend if options (i) or (iii) are chosen. None of the million revenue reserves would be

distributed. This year’s financial accounts have not yet been finalised.

(a) For each of the three proposals, show the likely effect on the company’s Balance Sheet at the end of this

year, and the likely effect on the company’s share price.

(b) Comment on how well these suggestions fulfill the managing director’s objective of providing an extra

return to the company’s shareholders.

(i) a scrip dividend,

(ii) a share (stock) split. (ACCA)

£40

£30

£50

£5

£9£5

CFAI_C16.QXD 10/28/05 4:57 PM Page 445

446 Part V Strategic financial decisions

6 Netherby plc manufactures a range of camping and leisure equipment, including tents. It is currently experi-

encing severe quality control problems at its existing fully depreciated factory in the south of England. These

difficulties threaten to undermine its reputation for producing high-quality products. It has recently been

approached by the European Bank for Reconstruction and Development, on behalf of a tent manufacturer in

Hungary, which is seeking a UK-based trading partner which will import and distribute its tents. Such a

switch would involve shutting down the existing tent manufacturing operation in the United Kingdom and

converting it into a distribution depot. The estimated restructuring costs of million would be tax-allowable,

but would exert serious strains on cash flow.

Importing, rather than manufacturing, tents appears inherently profitable, as the buying-in price, when

converted into sterling, is less than the present production cost. In addition, Netherby considers that the

Hungarian product would result in increased sales, as the existing retail distributors seem impressed with the

quality of the samples which they have been shown. It is estimated that for a five-year contract, the annual

cash flow benefit would be around million p.a. before tax.

However, the financing of the closure and restructuring costs would involve careful consideration of the

financing options. Some directors argue that dividends could be reduced, as several competing companies

have already done a similar thing, while other directors argue for a rights issue. Alternatively, the project

could be financed by an issue of long-term loan stock at a fixed rate of 12 per cent.

The most recent Balance Sheet shows million of issued share capital (par value 50p), while the market

price per share is currently A leading security analyst has recently described Netherby’s gearing ratio as

‘adventurous’. Profit after tax in the year just ended was million and dividends of million were paid.

The rate of Corporation Tax is 33 per cent, payable with a one-year delay. Netherby’s reporting year coin-

cides with the calendar year and the factory will be closed at the year end. Closure costs would be incurred

shortly before deliveries of the imported product began, and sufficient stocks will be on hand to overcome any

initial supply problems. Netherby considers that it should earn a return on new investment of 15 per cent p.a.

net of all taxes.

Required

(a) Is the closure of the existing factory financially worthwhile for Netherby?

(b) Explain what is meant when the capital market is said to be information-efficient in a semi-strong form.

If the stock market is semi-strong efficient and without considering the method of finance, calculate the

likely impact of acceptance and announcement of the details of this project to the market on Netherby’s share

price.

finance this project.

(d) Explain why a rights issue generally results in a fall in the market price of shares. If a rights issue is under-

taken, calculate the resulting theoretical ex-rights share price of issue prices of per share and per

share, respectively. (You may ignore issue costs.)

(e) Assuming the restructuring proposal meets expectations, assess the impact of the project on earnings per

share if it is financed by a rights issue at an offer price of per share, and loan stock, respectively. (Again,

you may ignore issue costs.)

(f) Briefly consider the main operating risks connected with the investment project, and how Netherby might

attempt to allow for these.

(ACCA)

£2

£2£1

£10£15

£3.

£5

£2

£5

Consider the long-term financing of a company with which you are familiar. Evaluate each of the main sources of

finance and suggest, with reasons, two methods of finance that are not currently used, but which may prove

attractive to the company.

Practical assignment

CFAI_C16.QXD 10/28/05 4:57 PM Page 446

Returning value to shareholders:

the dividend decision

Learning objectives

After reading this chapter, you should:

■ Understand the competing views about the role of dividend policy.

■ Understand what factors a financial manager should consider when deciding to recommend a

change in dividend payouts.

■ Understand what is meant by the ‘information content’ of dividends.

■ Appreciate the impact of taxation on dividend decisions.

■ Understand why changes in dividend payments usually lag behind changes in company earnings.

It never rains

In June 2004, Monsoon, the ladies’ clothing retailer,

made a remarkable announcement. It declared that in

order to finance foreign expansion and to fund the

acquisition of 21 former Dixons loss-making stores

that were being closed down, shareholders would

have to forego dividends for several years. Monsoon

planned to raise investment expenditure from an

average of million over the previous three years

to million for 2004–5. Already operating stores in

Denmark, Iceland and Saudi Arabia, it strongly hinted

that Russia, where its Moscow store sold children’s

clothing, might be its new target for further expan-

sion. The UK expansion would increase Monsoon’s

trading area by 12 per cent, and including its

Accessorize chain, selling jewellery and hats, would

increase its number of stores to 252.

A company press statement declared:

The board will continue to review dividend policy as

appropriate, but it is unlikely that the group will pay

dividends in future years while it remains in this

period of high capital expenditure.

In 2003, Monsoon’s founder, Peter Simon, had

alarmed shareholders by increasing the family stake

to over 75 per cent, and relegating the firm’s status

from the Main List to the AIM market, thus reducing

the liquidity of the shares. Moreover, the Finance

Director resigned in early 2004, allegedly after a ‘cul-

ture clash’.

The share price rose 6p to 180p on the announce-

ment of the new investment.

Source: Based on article in the Financial Times, June 2004.

£33

£13

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448 Part V Strategic financial decisions

Table 17.1

Kelda Group plc

Financial Calendar

2004

Announcement of preliminary results 26 May 2004

Annual general meeting 29 July 2004

Ex-dividend date 25 August 2004

Record date 27 August 2004

Final dividend payment date 1 October 2004

Source: Kelda Group plc, Annual Report and Accounts, 2004.

17.1 INTRODUCTION

This chapter will help you to appreciate the factors that drive dividend decisions.

Most quoted companies pay two dividends to ordinary shareholders each year: an

interim, or ‘taster’, based on half-year results, followed by the main, or final, dividend,

based on the full-year reported profits. The amount of dividend is determined by the

board of directors, advised by financial managers, and presented to the Annual

General Meeting of shareholders for approval. The board and their advisers thus face

a twice-yearly decision about what percentage of post-tax profits to distribute to share-

holders (the ‘payout ratio’) and hence what percentage to retain (the ‘retention ratio’).

Until a specified Record Day, the shares are traded cum-dividend: that is, pur-

chasers will be entitled to receive the dividend. The approved dividends are paid to

all shareholders appearing on the share register on the Record Day, after which the

shares are quoted ex-dividend, i.e. without entitlement to the dividend. In practice,

there is a time lag between the shares going ex-dividend and the Record Day to allow

the company’s Registrar to update the shareholders’ register to reflect recent dealings.

The Financial Calender of Kelda Group, the water utility, is shown in Table 17.1.

People purchasing Kelda shares whose names did not appear on the register by 27th

August 2004 would not have received the final dividend payable per share (18.73p).

How should top management approach the dividend decision? Should it be gener-

ous and follow a high payout policy, or retain the bulk of earnings? The pure theory

of dividend policy shows that, under certain conditions, it makes no difference what

they do! One authority argues: ‘to the management of a company acting in the best

interests of its shareholders, dividend policy is a mere detail’ (Miller and Modigliani,

1961). However, the conditions required to support this conclusion are highly restric-

tive and unlikely to apply in real-world capital markets. Indeed, many financial man-

agers and investment analysts take the opposite view, appearing to believe that the

dividend payout decision is critical to company valuation and hence a central ele-

ment of corporate financial strategy. These are the extreme views – an evaluation of

the case for and against dividend generosity leads to more pragmatic ‘middle-of-the-

road’conclusions.

In this chapter, we consider the strategic, theoretical and practical issues surround-

ing dividend policy, and discuss some of the alternatives to dividend payment. The

basic message for management is: define the dividend policy, make a smooth transition towards

it, and think very carefully before changing it.

Few people doubt that dividend levels influence share prices. Indeed, a common

method of valuation, the Dividend Valuation Model (introduced in Chapter 4) relies on

discounting the future dividend stream. However, debate centres on what is the most

attractive pattern of dividend payments, and the effects of changes in dividend policy.

Shareholders can receive returns in the form of dividends now and/or capital

appreciation, which is the market’s valuation of future expected dividend growth. But

are shareholders more impressed by the higher near-in-time dividends than by the

capital gain generated by a policy of low current payments, with retentions used to

ex-dividend

A share trades ex-dividend (xd)

when people who buy are no

longer entitled to receive the

upcoming dividend payment

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Chapter 17 Returning value to shareholders: the dividend decision 449

finance worthwhile investment? Graham et al. (1962) claimed that $1 of dividend was

valued four times more highly by shareholders than $1 of retained earnings. Yet it is

not uncommon to observe quite parsimonious (or even zero, e.g. Dell) payout ratios.

Conventional wisdom warns companies subject to volatility of earnings to operate

relatively high dividend covers to safeguard dividend payments in the event of

depressed profitability. Similarly, smaller companies with less easy access to fresh sup-

plies of capital are also advised to conserve cash and liquidity by operating a conser-

vative dividend policy.

Over the past two decades, attitudes in the UK to dividend payouts have appeared

to change in favour of higher payouts. Why is this?

1 Companies may be more aware of the threat of takeover, and use high payouts as a

pre-emptive defence to buy shareholder loyalty.

2 The tax changes in the 1988 Finance Act largely removed the tax discrimination

against dividend payments.

3 Reflecting a short-termist perspective, it may be that companies feel under greater

pressure from institutional shareholders to pay out higher dividends.

Whatever the reasons, it has become more difficult to generalise about optimal div-

idend policy.

In the following sections, we consider strategic and legal issues before examining

the theory of dividend policy and, in particular, the ‘irrelevance’ hypothesis. We then

consider the major qualifications to the theory, suggesting reasons why some share-

holders may, in practice, prefer dividend income. You will see that dividend policy is

an enigma with no obvious optimal strategy. However, it is possible to make some

broad recommendations to guide the financial manager.

17.2 THE STRATEGIC DIMENSION

Formulating corporate strategy requires specification of clear objectives and delin-

eation of the strategic options contributing to the achievement of these objectives.

Although maximisation of shareholder wealth may be the paramount aim, there may

be various routes to it. For example, diversifying into new industrial sectors involves a

choice between internal growth and growth by acquisition. Whichever alternative is

selected, the enterprise will need to consider both the level of required financing and

the possible sources. The main alternatives for the listed company are short- and long-

term debt capital, new share issues (normally rights issues) and internal financing (via

retention of profits and depreciation provisions).

This is where we encounter the role of dividend policy. The amount of finance

required to support the selected strategic option may exceed the borrowing capaci-

ty of the company, necessitating the use of additional equity funding. A capital-

hungry firm therefore faces the choice between retention of earnings, i.e. restricting

the dividend payout, or paying out high dividends but then clawing back capital via

a subsequent rights issue. Neither policy is risk-free, as both may have undesirable

repercussions on the ability to exploit strategic options. Retention may offend

investors reliant on dividend income, resulting in share sales and lower share price,

conflicting with the aim of wealth-maximisation, as well as exposing the company to

the threat of takeover. Alternatively, the dividend payment-plus-rights issue policy

incurs administrative expenses and the risk of having to sell shares on a flat or

falling market. To this extent, the dividend decision is a strategic one, since an ill-

judged financial decision could subvert the overall strategic aim. Consequently,

financial managers must carefully consider the likely reaction of shareholders, and

of the market as a whole, to dividend proposals.

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450 Part V Strategic financial decisions

17.3 THE LEGAL DIMENSION

Legal factors impose further constraints on managers’ freedom of action in deciding

dividends. Although shareholders are the main risk-bearers in a company, other stake-

holders, such as creditors and employees, carry a measure of risk. Accordingly, share-

holders can be paid dividends only if the company has accumulated sufficient profits.

They cannot be paid out of capital, except in a liquidation, as to do so would mean they

would be paid ahead of prior claims on the business.

The Companies Act 1985 states that, in general, companies are restricted to accu-

mulated realised profits. However, public companies are further restricted to realised

profits less unrealised losses. Furthermore, bondholders may insist on restrictive

covenants being written into loan agreements to prevent large dividends being

declared.

Of course, paying the maximum legally permitted dividend is rarely likely to make

strategic sense. Moreover, dividends are paid out of profits but with cash (or borrow-

ings). It is quite common for companies to report low or negative profits, yet to main-

tain the previous year’s dividend. This is both feasible and acceptable if the firm in

question has built up sufficient reserves for previous years’ retentions and has a rea-

sonably healthy cash position. Indeed, the share prices of some struggling companies

actually rise when they pay a maintained dividend out of reserves. This is because a

maintained dividend is believed to be a signal to the market of expectations of better

times ahead. Remember that managers have more information to hand than investors.

So, in this case, many investors may believe that directors are conveying favourable

information.

17.4 THE THEORY: DIVIDEND POLICY AND FIRM VALUE

The critical issue is how, if at all, does dividend policy affect the value of the firm? This

section shows that the answer depends on whether or not a firm has access to external

financing. In the absence of external financing, dividend payment may damage com-

pany value if the company has better investment opportunities than its shareholders.

Payment of dividends may prevent access to worthwhile investment. With external

financing, however, at least in a perfect market, dividends become totally irrelevant,

since payment no longer precludes worthwhile investment, simply because the firm

can recoup the required finance by selling shares.

In Chapter 4, we used the Dividend Valuation Model to show that the value of a com-

pany ultimately depends on its dividend-paying capacity. For a company with constant

and perpetual free cash flows

†

of in any year t, paid wholly as dividend, the mar-

ket will discount this stream at the rate of return required by shareholders, so that:

If a proportion, b, of earnings is retained each year, beginning in period 1, for exam-

ple, thus reducing the next dividend payable to company value is given byE

11  b2,

Value of equity  V



t 1

11  k



aor V



since

 D

In this chapter, we assume no company borrowing, hence the value of the company is synonymous

with the value of the equity. When referring to the present value of the whole equity, we use the sym-

bol and when referring to the value of an individual share,

† In this and subsequent chapters, the letter E is used to denote a free cash flow concept of earnings,

as explained in Chapter 4. Here, free cash flow is calculated after replacement investment but before

strategic investment. Free cash flow is likely to deviate from accounting earnings, so when the latter

accounting concept is intended, the phrases ‘accounting profit’ or ‘reported earnings’ are used.

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Chapter 17 Returning value to shareholders: the dividend decision 451

Self-assessment activity 17.1

Using the following figures, remind yourself why the growth rate of

(Answer in Appendix A at the back of the book)

Earnings in latest year  £1,000; b  60%; R  15%.

earnings  1b  R2.

These expressions can cause confusion. In the first case, the market appears to value

the stream of earnings, while in the second, the valuation is based upon the stream of

dividends. Indeed, in the early stages of the debate about the importance and role of

dividend policy, much attention was paid to the issue of whether the market values

earnings or dividends. This apparent dichotomy can be easily resolved if we focus on

the reasons for earnings retention. Retention may occur for two main reasons.

First, the company may wish to bolster its holdings of liquid resources. For example, div-

idend distribution may run down current assets or perhaps increase borrowings. Many

profitable companies borrow to avoid having to reduce or omit (or ‘pass’) a dividend,

for reasons explained later.

However, the primary reason for retention is to finance investment in fixed and other

assets to generate higher future earnings and, hence, enhance future dividend-paying

capacity as in the Monsoon case. By introducing retention and growth, the Dividend

Valuation Model becomes the Dividend Growth Model (DGM).

It is important to remember that the DGM assumes a constant retention ratio and a

constant return on new investment projects. If these assumptions hold, both earnings

and dividends grow at the same rate. Whether this rate is acceptable to shareholders

depends on the return they require from their investments, The relationship

between and R, the return on reinvested earnings, provides the key to resolving the

valuation dispute.

■ Dividend irrelevance in perfect capital markets

Miller and Modigliani (MM) pointed out in 1961 that earnings retention was simply

one way of financing investment. If the company has access to better investment oppor-

tunities than its shareholders, under perfect capital market conditions, investors may

benefit from retention.

The original MM analysis proves dividend irrelevance in terms of a single dividend

cut to finance worthwhile investment. MM envisaged an all-equity-financed company

that has previously paid out its entire annual net cash flow as dividend. To illustrate

their analysis, let us examine the case of Divicut plc.

■ One-off dividend cuts: Divicut plc

Divicut currently generates a perpetual free cash flow of p.a. Shareholders

require a return of 10 per cent. The market will value Divicut at

on unchanged policies. If the management now decides to retain the whole of

next year’s earnings in order to invest in a project offering a single cash flow of £1,200

£10,000

1£1,000>10%2 

£1,000

the forthcoming dividend divided by the cost of equity less the growth rate. The

growth rate, g, is given by the retention ratio, b, times the return on reinvested funds,

R (as explained in Chapter 4):

Value of equity  V



11  b2

 g2



 g2



 bR2

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452 Part V Strategic financial decisions

in the following year, the new market value of Divicut equals the present value of the

revised dividend flow, assuming it reverts to 100 per cent payouts:

Year 1 2 3 4 etc.

Dividend 0 2,200 1,000 1,000 ---------------------------------

This revised dividend flow is acceptable only if the resulting market value is at least

equal to the pre-decision value, i.e. if the NPV of the project is at least zero. This is

clearly the case, as the PV of the extra in two years is greater than the PV of

less in one year, i.e.:

Divicut’s shareholders are better off by

Shareholder wealth is enhanced, since Divicut has used the funds released by the

dividend cut to finance a worthwhile project. If these funds had been invested at only

10 per cent, the net effect would have been zero, while if investment had occurred at

a rate of return of less than 10 per cent, shareholders would have been worse off. This

simple example shows that the impact on company value is attributable to the invest-

ment, rather than the dividend, decision.

£83.

or, £992 7 £909

£1,200

11.12

£1,000

11.12

£1,000

£1,200

1£2

Self-assessment activity 17.2

Re-work the Divicut example for the case where the returns on the investment are

rather than in year 2.

(Answer in Appendix A at the back of the book)

£1,200

£1,080

MM’s dividend irrelevance conclusion was obtained in a world of certainty, and

then extended to the case of risk/uncertainty, where the same conclusions emerge so

long as investor behaviour and attitudes conform to conditions of ‘symmetric market

rationality’. This requires the following:

1 All investors are maximisers of expected wealth.

2 All investors have similar expectations.

3 All investors behave rationally.

4 All investors believe that other market participants will behave rationally and that

other investors expect rational behaviour from them.

These assumptions were spelled out by Brennan (1971) and form part of the battery

of conditions required for a perfect capital market. The additional assumptions

required to support the ‘irrelevance’ hypothesis are as follows:

1 No transaction costs or brokerage fees.

2 All investors have equal and costless access to information.

3 All investors can lend or borrow at the same rate of interest.

4 No buyer or seller of securities can influence prices.

5 No personal or corporate income or capital gains taxes.

6 Dividend decisions are not used to convey information.

The full significance of some of these assumptions will be highlighted when we

examine some of the reasons why shareholders may have a definite preference for

either dividends or retentions.

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Chapter 17 Returning value to shareholders: the dividend decision 453

■

Permanent dividend cuts: more Divicut

This argument can also be applied to the case of permanent retentions using the

Dividend Growth Model, although the analysis is a little more complex. Retention may

lower the dividend payment only temporarily, resulting in a rate of growth yielding

higher future dividends. This is shown in Figure 17.1. At point-in-time the company,

which currently pays out all its earnings, plans to cut dividends from to

where b is the retention ratio.

Dividends do not regain their former level until time involving a cumulative loss

in dividend payments equal to the area XYZ. Beyond time dividends exceed their

original level as a result of continued reinvestment. Clearly, shareholders will be bet-

ter off if the area of higher future dividends, VZW, exceeds XYZ (allowing for the dis-

counting process). This holds if R, the return on retained funds, exceeds This

contention can be illustrated using the example of Divicut again.

Recall that, prior to alteration in dividend policy, the value of Divicut was

derived by discounting the perpetual earnings stream. Imagine the company

announces its intention to retain 50 per cent of earnings in all future years (i.e. from

£10,000,

11  b2E

No retentions

With retentions

Time

(1–

)

Dividends

Increased

dividends

Dividends

forgone

Figure 17.1

The impact of a perma-

nent dividend cut

The kindest cut

Go on, say it: British Telecommunications is going to cut its dividend. The company more or less

admitted as much to buyers of yesterday’s

6.4

billion bond issue. With BT paying 40 to 50 basis

points more than the market price of Deutsche Telekom’s debt and facing stiff interest penalties if

it does lose its single-A credit rating, it would be senseless not to.

Scrapping the dividend would send a stark message to the market and infuriate legions of

retail investors. But a business should not be imprisoned by its old dividend policy when its cir-

cumstances have changed. It is far better for BT to stop paying out cash than to sell more

assets than it needs when prices are at rock bottom – a certain recipe for value destruction.

Source: Based on Lex Column, Financial Times, 19 January 2001.

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454 Part V Strategic financial decisions

and including Year 1) to finance a series of projects offering a perpetual yield of 15 per

cent. Market value according to the dividend growth model is:

This may seem a remarkable result. The decision to retain and reinvest doubles

company value! Does this mean that dividend payments make shareholders worse

off? The answer is simple.

Payment of dividends may make shareholders worse off than they otherwise might

be if distribution results in failure to exploit worthwhile investment. In other words,

the beneficial impact on Divicut’s value is achieved because of the inherent attractions

of the projected investments. Conversely, if the funds had been invested to yield only

5 per cent, market value would have fallen to

The in-between case, where the return on reinvested funds, per cent,

leaves company value unchanged. This suggests that, if we strip out the effects of the

investment decision, the dividend decision itself has a neutral effect. This can be done by

assuming retentions are used to finance projects that yield an aggregate NPV of zero, i.e.

yielding a return of With this assumption, dividend decisions are irrelevant to share-

holder wealth. With a return on reinvested funds of 10 per cent, the company’s value is:

Here we have valued the dividend stream, and the result is equivalent to valuing

the steady stream of earnings with no retentions. This equivalence may perhaps be

more readily seen by manipulating the expressions for value. If we neutralise the effect

of the investment decision so that we may write:

There are clear conclusions from this analysis. In the absence of external financing:

1 If the expected return on reinvested funds exceeds it is beneficial to retain. A dividend

cut will lead to higher value but only because funds are used to finance worthwhile

projects.

2 If the return on reinvested funds is less than retention damages shareholder inter-

ests. A dividend cut would lower company value because shareholders have better

uses for capital.

3 If the return on reinvested funds equals the impact of a dividend cut to finance

investment is neutral.

Value

equity

 V



 g2



11  b2

 g2



11  b2

 bR2



11  b2

 bk



11  b2



 R,

Value of equity  V



11  b2

 g2



£1,00011  0.52

0.1  10.5  0.12



£500

0.05

 £10,000

R  k

 10

£6,666.



£500

0.025

 £20,000

Value of equity  V



11  b2

 g2



11  b2

 bR2



£1,00011  0.52

0.1  10.5  0.152

Shareholders want their cash handed back to them

There was a fashion statement

buried deep in French Connec-

tion’s interim results yesterday

that had nothing to do with fcuk

and everything to do with the

dowdy world of dividends.

In the era of bare midriffs, the

UK corporate sector is confronting

a fashion that dates back to a time

when City gents wore bowler hats

and bow ties.

In the UK, the dividend is making a comeback as companies eye stability,

says Henry Tricks

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