How can some companies report loses and still pay dividends?
Answers
215 points
DirtyD answered one year ago …
Because an accounting loss isn't the same as a "cash" loss. GAAP (Generally Accepted Accounting Principles) are much different from a standard cash based accounting system you might be used to when looking at your own bank account.
For example, I may pay $12,000 for a car this month, but since I'll use that car for 2 years I can spread the cost out on my financial statements over a 24 month period - meaning, I'll have an expense on my income statement for $500 per month.
So as you can see, a company could still be coming out of pocket for cash but not showing all of it at once. The reverse is also true -- a company could show a loss but still have enough cash coming in to distribute to shareholders.
989 points
rvilmur answered one year ago …
Companies that previously had positive cash flow and have not spent it for other purposes can still pay dividends with no current earnings or negative earnings. Usually management has expectations that the down turn is temporary and they will ride through the rough patch without dropping/eliminating their dividend.
Some companies with currently negative cash flow and no money in the bank will borrow money to continue their dividend. It is like robbing the shareholders so that they can maintain the fiction of a healthy company.
