Finance 101: When to pay a dividend

In today's lesson of Finance 101, we shall discuss when to pay a dividend.

Question: If your company has a net equity of -40 bn $, and just posted an annual loss of 40 bn $, would you pay a dividend?

Well, if you're GM, then apparently you do go ahead and pay a dividend: GM paid its regular quarterly dividend in 2/08 and 5/08, and didn't even cut the amount. And as late as 6/08, people were still speculating that dividend payments would continue.

I noticed this by coincidence and at first refused to believe it. How can a company in such shape even be allowed to pay a dividend? Under German law, a limited liability company can only pay a dividend if its net equity exceeds the paid-up-capital. If net equity becomes negative, it needs to convincingly show that it has a future as a going concern, or otherwise apply for insolvency proceedings. But America is once more different.

By the way, Ford stopped paying dividend back in 2006.