Published
April 24, 2020
Since the beginning of the pandemic, businesses across all sectors have played a significant role in helping individuals, communities, and other businesses get through these trying times. We recently highlighted a few examples of how the financial services industry is helping communities directly while ensuring their customers maintain access to the funding they need. At the same time, federal programs like the Paycheck Protection Program (PPP) and Main Street Lending Program (MSLP) are helping small and midsize companies to keep employees on their payroll while allowing customers to access essential products and services.
In addition to providing essential goods and services, public companies have an essential role to play in maintaining funding for everyday Americans that most people don’t think about. Each quarter, U.S. publicly-traded companies pay out billions in dividends to Americans. A dividend is a distribution of a company’s profits to shareholders, including pension plan beneficiaries, 401(k) savers, or everyday investors.
Many of them, who may be retired or are no longer working, depend on dividends as a reliable, steady stream of income—an increasingly important thing during times of crisis. According to the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2016”, income received through interest, dividends, or rental income was received by 27% of respondents over the age of 18. While more than one in three (40%) of those 60 or older reported dividends as a stream of income. In fact, for some households, dividends help pay for essential things like mortgages or healthcare—two things which are top priorities during a crisis like the one we now face. But still, some policymakers are calling for public companies to be prohibited from distributing dividend payments to their shareholders.
All public companies—not just banks—who are going through troubling times are in a similar bind. Under requirements in the Federal Reserve’s lending programs any business in need of loans to continue to pay its employees and remain open must agree to restrictions on dividends, among other things.
As the Chamber recently stressed in our recommendations to the Federal Reserve and U.S. Treasury, businesses that participate in the MSLP should not be automatically prohibited from paying dividends to shareholders. This might have the perverse incentive of companies deciding not to accept these needed resources out of a concern they will not be able to attract and retain investors.
If these dividend payments were to be suspended—even temporarily—money would be taken out of the pockets of still more Americans, reducing their spending power and dealing another blow to an already fragile economy.
In these uncertain times, Americans need to be able to access every possible source of income, including dividends from businesses. Doing anything to take dollars out of the pockets of large segments of the American public right now isn’t just unwise—it’s simply unfair. The best thing we can do right now is to ensure all companies keep their dividends flowing to investors. In the end, that’s the best call for everyone.
About the authors
Tom Quaadman
Tom Quaadman develops and executes strategic policies to implement a global corporate financial reporting system, address ongoing attempts of minority shareholder abuse of the proxy system, communicate the benefits of efficient American capital markets, and promote an innovation economy and the long-term interests of all investors.
