For shareholders in equities, things have never been so good as in the last four years. Corporate profitability has recorded unprecedented growth of 20 to 30 per cent for each of the four years since 2001. And directors have come out beaming from board rooms, after approving handsome sums in dividend.

Up until Oct 8 this year, out of the 663 listed companies, 278 had announced financial results for 2004. Of those, 229 had declared profits and 175 paid dividends, which meant that every third company making a profit decided to share it with its shareholders.

Last year, the number of companies paying dividend was 319 or 72 per cent of the 438 profitable companies and the year before 308 or 71 per cent of 431 companies earning profits. We are not discussing here the loss making companies.

For in that case it would have to be argued whether in all such cases, the loss was a genuine one, or managements passed through the auditors to pull wool over the eyes of regulators and investors.

Dividend payouts by corporates this year has been all across the spectrum. Mutual funds; cement; energy; fertilizer and banks have stood in the vanguard. Just to recount a few pleasant examples: Fauji Bin Qasim in the fertilizer sector paid out its maiden cash dividend this year at 10 per cent; PTCL surprised investors with its all-time high record payout; Fauji Fertilizer disbursed 120 per cent cash with nine-months accounts and most banks announced healthy bonus issues, understandably to raise capital to the SBP's minimum capital requirement of Rs1.5 billion by December '04 and Rs2 billion by December '05.

And the icing on the cake of dividend payouts by corporates was spread by the newly listed Oil and Gas Development Company Limited (OGDC), which made a record of sorts when it declared an interim cash dividend for the current year, so quickly on the heels of the announcement of previous year's final dividend.

Since the government which owns about a half of the equity market, has fetched Rs22 billion more than its budgetted target of Rs30 billion for FY'05. The 50 per cent higher dividend earnings has helped the government, in part, to fill the hole in its widening fiscal deficit, caused by an unprecedented high price of over $50 a barrel of crude oil.

But where the investors in equities and the Government has been richer due to handsome company payouts, the general public has also indirectly enjoyed the benefit. If it were not for higher earnings of Rs22 billion that accrued to the state from its stake in listed stocks, the government would have found it difficult to refrain from raising prices of POL products (petrol, diesel, etc), that has spiralling effect on the entire economy.

Pragmatists, nonetheless, caution that good times may not roll on for ever. Companies on most sectors have generally posted growth of 25 per cent in profit over the last four years due mainly to an economic growth miracle and lower interest rates. It would require a great leap of faith to believe that profits would continue to rise at that pace for many more years.

But for companies earning stream has not altogether dried up and so long as corporates keep making profits, investors can hope that boards would pass on benefits to shareholders in dividends. But surely, disbursement of dividends to shareholders may not necessary be linked to corporate profitability for company boards look at cash flows not earnings.

That argument seemed to make sense and the Government quietly pulled back its regulation enforced through Finance Act 1999-2000 that had made it mandatory for profitable companies to disburse 40 per cent of after tax profit to shareholders in dividend or face additional tax penalty of 10 per cent on the sum of reserves that exceeded 50 per cent of company's capital.

Although corporate regulators boasted that 39 new companies had paid cash dividends amounting to Rs 553 million in the year following, but some blue chip companies rebelled against the compulsory payout requirement and threatened to de-list from the stock exchanges.

Besides constraint on cash flows such companies also impressed upon the regulators that they were drained of funds set aside for capital expenditure. On the payout policy, company boards and minority shareholders have, understandably, never shared the same view.

Section 248 of the Companies' Ordinance 1984 vests the right of dividend declaration to the general body of shareholders on the "recommendation" of the board. Interestingly, shareholders at annual general meetings (AGMs) that follow the board meetings, may decrease, but not increase the dividend recommended by directors.

Minority shareholders, when they are not clamouring for "gifts", are seen to pester managements for higher dividends. Thus at AGMs, investors with smaller blocks of shares show scarce interest in directors' discourse about company mission, vision, stronger balance sheets and capital expenditure plans.

But should there be a mandatory provision requiring companies to pay dividends to shareholders? The answer has to be 'yes' and 'no'. Left to themselves, many delinquent managements would rather siphon off funds for themselves, than pay dividends to shareholders.

Most textile mills are notorious for such behaviour; both for cooking up the balance sheets and omission of dividends to shareholders. But at the same time, asking companies to pay as much as 40 per cent of net earnings in dividends was decidedly too high.

Many managements argue that Warren Buffet-voted as the second richest man in the world- does not pay dividend to shareholders in his flagship company, Berkshire Hathaway Inc, whose class 'A' share is the most expensive stock in America-currently trading at $82,900 each!

Following the withdrawal of Finance Act 2000 regulation requiring disbursement of 40 per cent taxed profit in dividend, stock exchange substituted "compulsion" with "persuasion" to make corporates remunerate small shareholders.

The stock exchange listing regulations require companies to pay dividends at least once in five years or be thrown out to the 'defaulters' counter'. When the law began to be strictly enforced by the independent stock exchange management, directors on numerous company boards decided to pay dividends to shareholders, even if in small per centage, foregoing directors' own share, in order to avoid being pushed to the infamous counter.

PIA is one such example, which last year belatedly paid 5 per cent cash dividend in order to avoid the destination to the 'defaulters' counter'. Often companies escaped dividend payouts on the pretext of accumulated losses on the balance sheets. That was perhaps correct, by the law.

But in many cases, mostly on the spinning sector, profit, if ever earned by companies was so small, that two generations of an investor never set an eye on a dividend and no one knew how many more would have to wait until a dividend actually accrued.

Persuading companies to pay dividends to shareholders from current profit instead of waiting for ages for the clearance of accumulated losses, therefore, seems to have worked as the right course to follow.