A regular dividend policy, also known as a constant dividend policy, sees payouts closely linked to the company’s performance, both rising and falling in line with earnings. This often involves setting a payout rate.
The main characteristic of a regular dividend policy is that payouts move in line with earnings: if the company reports a 50% rise in profit then dividends should follow suit, but if they fall 50% then so will the dividend. This means investors reap the reward of a stellar year but also lose out if times have become tough. This can lead to volatile dividends for investors, but it does mean payouts are more sustainable because they are directly linked to earnings, and as the business is committing to a fixed rate of earnings it has more certainty when planning future budgets.