Backtracking on its earlier policy stance, the Bangladesh Securities and Exchange Commission has allowed the listed companies with accumulated losses to disburse cash dividend from their current year's profit.
"Reviewing the applications from investors and issuer companies, the commission decided to come up for the interest of the market," reads a press release issued by the securities and exchange commission on Wednesday.
Earlier in August 2018, the securities regulator said in a notification that no listed company can declare cash dividend, if they bear an accumulated deficit.
An accumulated deficit arises when the cumulative amount of losses experienced and dividends paid by a business exceeds the cumulative amount of its profits. An accumulated loss signals that an entity is not financially stable, since it requires additional funding.
According to the latest notification, however, any unstable company listed with the stock exchanges will be able to declare and disburse cash dividend from their specific year's profit after tax.
But, the companies must comply with all other parts of the relevant securities law, according to the notification.
Market professionals said almost two dozen listed companies are bearing accumulated losses, and half of those are supposed to post an annual profit this season.
Investors are expecting dividends from the companies which are turning around in business this year, while some companies too intend for the same.
The market regulator responded to their plea.
A policy U-turn?
Financial experts believe the latest move by the BSEC is a clear U-turn on its earlier stance of not allowing the companies undergoing accumulated deficits to disburse cash dividend.
They say the 2018-move by the BSEC was intended to prevent poorly performing companies' attempts to look as if brighter in the stock market than their real health.
Some listed companies tend to declare sudden dividends which is suspected to be a part of share price manipulation in the market, according to them.
Companies who do not pay dividends are downgraded to the "Z" category in stock exchanges, leading to the fall in their share price.
Some manipulators pick those stocks at a low price, and after that, they try to convince the market that the specific company is getting back to a strong territory in business. Cash dividend is a real proof of that.
But the problem is that cash dividend, even with an accumulated loss, is not a much sustainable way for a business to recover and this is historically proven, according to the experts.
The securities and exchange commission's 2018 notification was in line with that thought. But the Wednesday's notification did not let the policy continue further.