Constant payout % of dividends

If someone is going to invest their money in shares, then one of the most important factors in deciding which company to choose is the dividend policy.

For example, an old person is likely to want high income and will therefore invest in a company which pays high dividends (that will mean low capital growth because the company is retaining less money for investment, but an old person is less likely to be concerned about capital growth).

On the other hand, a younger person (who is working and earning income) is likely to be less interested in the dividends each year, and more concerned about capital growth. Therefore they will choose a company that pays low dividends (and therefore is retaining more, and investing more, which will grow the company).

For that reason, it is usual for companies to stick to a constant dividend policy. In both of the above examples, investors will be unhappy if the company changes its policy when the current policy is the reason they chose to invest in the company in the first place 🙂