Residual dividend policy

Under a residual dividend policy, an organisation determines the equity finance needed for its investment programme and distributes the remaining funds if cash, legal and contractual conditions permit. The resulting dividend can vary from year to year as opportunities and funding needs change. It seeks to balance investment and distributions, but does not mean every accounting profit is immediately distributable or that attractive projects must be accepted without considering risk and financing constraints. Some companies moderate volatility through a longer-term target or supplementary payments.