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A covenant is a promise. A dividend covenant will usually be a promise to long-term lenders limiting the levels of dividends. The reason will be to give the lenders more security and may be needed to persuade lenders to lend money.
I do not remember them ever being mentioned in Paper FM, and if they were then you would have to be told precisely what was agreed.
It was mentioned in a few answers to section c questions in the kit in regards to dividend policies of companies. Thank you for the explanation 🙂
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