Suspended Dividends | What It Means for Investors (2024)

FAQs

Suspended Dividends | What It Means for Investors? ›

When a company suspends dividend payments, this means that it has canceled the payment it intended to issue to shareholders. This can happen for a period of time or for the foreseeable future, and can disrupt the plans of people who own that company's shares.

If a shareholder has invested in the company with a view to receiving regular dividend payouts, failing to receive the anticipated return may result in the sale of their shares.

A quick definition of deferred dividend:

Dividends are usually paid in cash or additional shares, but a deferred dividend is not paid immediately. It is declared by the company and will be paid at a later time.

This most often leads to a sharp decline in the company's stock price, because this action is usually a sign of a company's weakening financial position, which makes the company less attractive to investors.

What are Dividends in Arrears? A dividend in arrears is a dividend payment associated with cumulative preferred stock that has not been paid by the expected date. These dividends have not been authorized by the board of directors, because the issuing entity does not have sufficient cash to make the payment.

If you have verified and updated your bank account details but still haven't received the dividend, consider contacting the registrar and transfer agent of the company. The registrar and transfer agent can provide insights into any potential issues or discrepancies regarding the dividend payment.

Newer companies, or those in the technology space, often opt instead to re-direct profits back into the company for growth and expansion, so they do not pay dividends. Rather, this reinvestment of retained earnings is often reflected in a rising share price and capital gains for investors.

The Bottom Line. When a company suspends dividend payments, this means that it has canceled the payment it intended to issue to shareholders. This can happen for a period of time or for the foreseeable future, and can disrupt the plans of people who own that company's shares.

Section 124(5) of the Companies Act 2013 delineates a crucial provision: any dividend amounts unpaid or unclaimed for seven years shall find their way to the Investor Education and Protection Fund (IEPF).

Can you sue a company for not paying dividends? ›

Remedies for Failure to Pay Dividends and Constructive Dividend Payments. Minority shareholders may be able to file a claim for breach of fiduciary duty or breach of trust in cases where majority shareholders have been unjustly compensated through constructive dividends.

Companies need to ensure they can pay dividends to ensure their profitability and protect their shareholders' investments. Companies unable to pay dividends may run the risk of insolvency or face serious financial and legal repercussions such as HMRC penalties, lowered market value and potential legal action.

Thus, investors who buy stocks that do not pay dividends prefer to see these companies reinvest their earnings to fund other projects. They hope these internal investments will yield higher returns via a rising stock price. Smaller companies are more likely to pursue these strategies.

General Information. Unclaimed dividends and small dividends are funds deposited with the Court by the trustee for an owner or recipient who is entitled to the money, but who has failed to claim ownership of it. Funds may be released by the Court when the claimant files an Application for Payment of Unclaimed Funds.

If a company pays out more dividends than it can afford, the excess amount must be returned to the company or be added to the director's loan account as a debt from the shareholder to the company. Having an overdrawn directors loan account can result in both income tax and corporation tax consequences.

Preference shares may be of several types, which would depend upon their terms of issue:  Cumulative or Non-cumulative: In case of Cumulative preference shares, the shares carry a right to receive arrears of dividends declared but not paid during the preceding years. Non-cumulative shares do not have this right.

Section 124(5) of the Companies Act 2013 delineates a crucial provision: any dividend amounts unpaid or unclaimed for seven years shall find their way to the Investor Education and Protection Fund (IEPF).

Dividends are often expected by shareholders as their share of the company's profits. Dividend payments reflect positively on a company and help maintain investors' trust. A high-value dividend declaration can indicate that a company is doing well and has generated good profits.

If you don't cash dividend checks, those checks and associated stock may be escheated unless you have made contact with the transfer agent. Since most states sell shares immediately, you will lose out on any market gains, dividends or stock splits that occur after the shares are sold.