Dividend Policy

“Honor the LORD with your wealth and with the firstfruits of all your produce; then your barns will be filled with plenty, and your vats will be bursting with wine.”

                                              ~ Proverbs 3:9-10 (ESV)

Dividend policy theory is boring.  It is one of the driest subjects I teach to aspiring MBAs.  Since dividend policy is the purview of top executives, students can’t help but wonder, “How does this apply to me?”

Buried in the 17th chapter of the Finance textbook used in our MBA program is a discussion of dividend policy theory.  Now I’m a finance nerd but, even to me, this topic is tedious.  As part of this discussion, the textbook authors list reasons why executives should increase dividends, and then list reasons executives should decrease dividends.  This tends to make the students feel like the textbook authors are arguing with themselves, which doesn’t help me any.

Amongst the list of reasons for increasing dividends is a simple premise: If you use up a company’s cash to pay dividends, executives have less money to squander.  Furthermore, it has the added effect of reminding executives who they work for.  The funds are not “theirs,” and they have a responsibility to return the resources to the owners.

The first time I read these assertions, I immediately recognized this concept: It is called “tithing”!  Like all great concepts in finance, God thought of it first (Gen 14:19-20, 28:20-32; Lev 27:30-34; Mal 3:10-12).

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