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Dividend disclosures – still room for improvement in the FTSE 350
Dividend disclosures
The Financial Reporting Council’s (‘FRC’) financial reporting lab has conducted a study of the annual reports published in 2016 from 313 companies that were in the FTSE 350 as at 31 December 2015.
The report compared the dividend disclosures in 2016 to the prior year annual report.
The report identified improvements with 58% of the FTSE 100 making some level of reference to distributable profits/reserves and 48% disclosing the specific amount available for distribution. However, this was not reflected in the FTSE 250 where only 30% of companies made reference distributable profits/reserves.
The FRC lab report provides some examples of what they view as good disclosure and identifies four areas where improvements can be made:
- Identifying the explicit links between dividend, principal risks and viability – the ACI has previously reported on the importance of business model reporting (Read More), this finding from the FRC lab is looking to link that reporting with a dividend strategy;
- Enhancing disclosure on constraints – where dividend levels are unlikely to be sustainable or have been restricted in the current year, disclosure should make this clear to the user;
- Explaining more fully what policy means in practice – certain policies are unclear and refer to themselves as ‘progressive’ or use pay-out ratios, these should be explained more explicitly; and
- Enhancing understanding of structure and process – for larger, complex groups an explanation of where profits available for distribution are generated and how that cash has been passed up the structure for distribution.
The full FRC lab report is avialble here
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