For a lot of people who pick dividend stocks to invest in, it's a sign that the company is stable and produces good cash flow.
What many do not know is that a corporation's directors can be held personally liable if they declare a dividend if the company is insolvent or if the dividend would make it insolvent. One source of this is (Delaware General Corporation Law) DGCL § 170 and 173. To keep a long story short, the dividend is measured against "actual current value" of the company, not book value. So it can shed light on what the actual value of a company might be compared to what is on the balance sheet.
What does this mean? When doing your DD (particularly with smaller companies), you may want to consider placing more weight on the fact that the company pays dividends. It is more telling than just "stable earnings". There is a big incentive for directors to withhold a dividend unless the company can tolerate it.
Submitted February 13, 2017 at 12:10AM by 500m1650ft http://ift.tt/2kibh1E
