What could cause payout ratios to increase? Perhaps it is the fact that management teams are paying themselves more in restricted stock units (RSUs) than in options? In recent years, more CEOs of S&P 500 companies have received compensation in the form of restricted stock than as options (Exhibit 8). It is important that fundamental analysts understand how the senior management teams of the companies they are analyzing are variably compensated, as those with restricted stock and not options are much more likely to increase dividends. The principle? People rarely intentionally damage their own net worth.

Eoin Treacy's view The time when dividends were regarded as an inefficient use of capital seems like a lifetime ago. No one is under any such illusion today. Incentivising CEOs to pay reliable dividends is a welcome evolution in terms of governance.