In order to come up with the dividend policy rather than a model, what do we have is variables that we know that matter when we make the decision, and this list is a little bit arbitrary, you can come up with a different list. But these variables one way or another are going to have an impact in the decision that we have to make, the environment in which we make the decision whether the economy is growing or not, whether the industry is growing or not, whether the company is growing or not. The clienteles, which is just another name for shareholders, what do they expect, how they're going to react when we make the dividend decision? The growth opportunities that we have, some companies that they're in stagnant economies and they grow slowly with the economy and they may have an opportunity to pay a lot. But some other companies may have a lot of interesting growth opportunities, and shareholders may want the company to keep the money to take advantage of those growth opportunities. Whether you have them or not, it's going to have an impact on your dividend policy. The smoothing that we mentioned before, managers do tend to smooth dividends, and that's why and we'll talk about this in a few minutes, when managers increase the dividends that a company apace that gives an indication that it's not just that we're going to get higher dividends today, is that management is expecting to keep those higher dividends in the future too, that's what smoothing is all about. Signals have to do with basically what the market makes out of the announcement. A company may say we're going to keep dividends the same. We are going to increase them, we're going to reduce them or we're going suspend them completely, and investors are going to make something out of that. One of the things that makes this topic difficult is that the same decision may lead to different signals depending on the environment, depending on the company. We'll talk about some of those examples, and taxes. I'm always reluctant to talk about taxes particularly when you have an international audience because taxes are so different across countries. What I'm going to say in a minute may not be the case in your own country, but in most countries it tends to be the case that what you pay as a tax on dividends you receive is different from what you pay on the capital gains that you get. Capital gains being the difference between the price at which you bought a share and the price at which you sell that share. Typically in most countries but I stress not necessarily in every country, the tax on capital gains is lower than the tax on the dividend said you have to pay. Particularly if you're a wealthy person, which means that your tax rate may be particularly high. Again, will say a couple of things about that a little bit later, but I'm going to try to stay away from tax reasons mostly because again, they're so different across different countries. Let's try to explore a little bit this relevant variables. One is the environment, if you are a company that needs to make a dividend decision in a booming economy, in a booming sector with a company that is booming, it will be very difficult to tell shareholders we're not going to pay you a penny. Some shareholders may be happy with that, some shareholders may accept it, some other shareholders will be very unhappy with that. They would say, "Hey, you're generating a lot of money, the company is doing well, the sector is doing well, the economy's doing well. Why don't you just distribute it so we can get some cash into our pockets?" That's one possibility. The flip side of that is an a stagnant economy or an economy in recession with a sector that is not doing very well and a company that is not doing very well, think exactly the situation that we have now in the summer of 2020. Because of the pandemic economies are not growing, in fact, they are contracting, many sectors are not doing very well, many companies are not doing very well. Nobody's expecting for the second half of 2020, the level of dividends that we could have observed in the second half of 2019, everybody's expecting lower dividends, but there will be understood, there will be justified by the general environment in which we make the decision. It's a very informal way of thinking about that, but certainly the environment is going to be a conditioning in the decision that you need to make. It's not going to be the only by any stretch of the imagination, the only variable in which we're going to focus, but it's a variable that you cannot really ignore when you get down to formulating your dividend policy.
