Most dividend-paying companies aspire to have a progressive dividend policy, meaning an annual payment to shareholders that goes up every year.
That's why, when they cut a dividend, bosses often use the cheesy euphemism "rebased" to describe the new level: they are trying to gain some credit for setting a new floor from which dividends can rise.
But here's something novel. Say hello to the volatile dividend policy – a distribution that could go up, down or sideways in any given year.
Naturally, Man Group didn't use the word "volatile", it prefers "revised". If you suspect that's another euphemism for a cut, you may turn out to be correct. But not necessarily.
Here's how it works. From next year, Man's shareholders will get "at least 100% of adjusted management fee earnings per share". In other words, all Man's basic earnings – the fees collected automatically from managing funds, minus the cost of doing business – will be passed to shareholders.
Those fees are currently running at about 12 cents a share. So, yes, a big cut from the current dividend level of 22 cents could be in the offing. Much depends on the level of assets under management, which declined from $69.1bn (£43.3bn) to $58.4bn between March and December last year. The slide has been halted since new year – $1bn has been added – but it's early days.
But the new dividend policy only describes a formula for a minimum payment. What if Man's funds actually start to perform better? What if performance-related fees, which slumped last year, return? In that case, a decent slice of those performance fees will also be directed to the shareholders. Indeed, Man has about $550m of excess capital to tap if it wishes.
So, if you're optimistic about the chances of Man's funds returning to form (especially the huge AHL black-box trend-following system) and attracting inflows again, there's an interesting bet here for an income investor. In 2012, the management says you'll still get a 22-cent dividend, equating to a 10% yield. When the new policy kicks in next year, you should get a 5%-ish yield if Man merely stabilises its business – but you might get more if management achieves a recovery.
It's a gamble on a company whose business model looks substantially less stable than in the past. But the market seems to like the terms – Man's shares rose 12% – and one can understand why. Hedge funds' fees are volatile, so a volatile dividend policy makes sense. It is certainly more logical than pledging to pay a dividend that is not covered by earnings.
Of course, it is also a mighty come-down from Man's pre-2008 glory days, when the progressive policy progressed as far as 44 cents a share. But, as a way of distributing more meagre and unpredictable rations, the new thinking looks friendly to shareholders. Viva volatility.
