The company may declare a dividend that exceeds earnings per share?

Answer:

The Declaration and payment of dividends has nothing directly in common with the current earnings per share (EPS). A company whose EPS is lower than the dividend in the current year may be coming off a string of more profitable years with a higher EPS, from which he provided funds for the payment of future dividends.

Many well-known companies of the Fortune 500 were paid dividends in years where they posted negative earnings per share.

Only the actual numbers that are important in the payment of dividends “retained earnings” and available cash. From the point of view of the management, retaining a portion of the proceeds of the shareholders quarterly or annually makes a lot of sense. Having maintained the balance of income allows the company to pay dividends consistently without any negative surprises. In addition, the company may hold cash to invest in its further expansion.

On a related note, many investors do not understand that the profits of the company per share is calculated after high-yielding preferred shares the dividends were paid. In other words, a large part of the expenses of the company dividends may be already reflected in the number of EPS that most investors look at. (See. also: types of EPS.)

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