What is Dividend Policy?
Dividend policy is the strategy a company uses to decide how much of its earnings to distribute to shareholders versus retain for reinvestment. Common policies include stable, residual, and target-payout.
How It Works
- Define a payout ratio or target dividend per share.
- Board declares dividends each period, subject to law and liquidity.
- Communicate the policy to investors for predictability.
Saudi Context
Tadawul-listed Saudi companies often disclose a multi-year dividend policy. Banks under SAMA must align distributions with regulatory capital requirements.
Example
A Saudi bank targets a 60% payout ratio and pays SAR 0.90 per share in line with SAR 1.50 EPS.