Do French companies pay too much dividends?

The publication by OXFAM of the percentage of dividends paid to shareholders in relation to the profits of CAC 40 companies since 2009 has appealed to all stakeholders. The rate of 69% is very high and well above the 50% rate, which was the goal of many companies many years ago.

The question therefore arises for institutional investors (majority in CAC40 companies) who all voted for these high distributions, although some have publicly stated that they recommend that companies in their portfolio prefer reinvestment via high distributions or share redemption.

Most of the reactions were rightly focused on the proper mix of reinvestment, employee bonuses and dividends. However, very few comments have considered the diversity of the companies, which must be taken into account when calculating this “fair” distribution.

For example, the employment contracts and compensation levels of employees of luxury companies are very different from those of advertising and communications companies. Yet the distribution rates are equivalent, if not higher, for communications companies. How is this justified even though the remuneration is low and the contracts are often fixed term and renewed for several successive subsidiaries (in contradiction with the intent of the law or the ethics that should be applied) ? This analysis is not done today by Proxy companies whereas it could provide important information to shareholders to judge the relevance of the distribution rate.

Paradoxically, the high distribution rate is also linked to the low level of interest rates that allows companies to go into debt at much lower rates than 10 to 20 years ago and thereby generate much higher returns by the leverage effect of the interest rate levels.

The very high distribution is also the consequence of the current monetary policy that allows some companies to go into debt at historically unknown rates and which have favoured a return of 4-5% for shareholders to ensure their “loyalty”.

But it also fundamentally raises the question of the distribution of these profits with employees, who would obviously have had to receive higher bonuses to also benefit from these very good profits. For most companies, the steps in this direction have been very timid and should have been more generous. Moreover, the proportion of employee shareholders who could benefit from this generous distribution level remains low in listed companies.

It is important that shareholders mobilise to explain to company boards of directors that a more fair distribution of profits between shareholders and employees is necessary, to ensure a convergence of interests between these stakeholders who can thereby create real long-term value for the company.

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