The New Zealand corporate dividend psyche, and imputation -the oil in the decision engine room.
New Zealand companies pay out more profits as dividends than any other country in the world, with an average distribution of 77% of post tax earnings. Australian corporates are second only to New Zealand with a dividend pay-out ratio of 73%. The common factor shared by these two South Pacific economies that exerts inevitable influence on this high dividend pay-out culture is our dividend imputation regimes, for which only a handful of countries follow. Because a dividend imputation regime replicates a near tax free marketplace for corporate pay-outs, imputation plays a significant role in fostering high dividend pay-out.
The Report on this that I undertook in 2015 involved very unique research with face-to-face interviews of 25 New Zealand corporates, and 12 investor groups, to get both sides of the picture. From this, a range of factors was compared on drivers of corporate dividend policy, and investor thinking from the other side. Differing attitudes exist, however, it seems clear that directors commonly believe that fully tax imputed dividends represent the optimal dividend strategy. This wedded belief often influences tax induced behaviours by corporates.
There is also evidence that investors under-value imputation credits. This suggests some more could be done to communicate the grossed-up worth of dividends.
The results of this market based survey reveals the dividend policies and thinking of New Zealand corporate directors.