What are ‘dividend pushers’ and ‘dividend stoppers’?
A ‘dividend pusher’ is a term (found in the prospectus) whereby the coupon is mandatory if remuneration is given to another specified security or class of securities within a specified period of time (usually known as the ‘pusher period’).
A ‘dividend stopper’ or ‘blocker’ is a term which states that the issuer will not, with a specified period of time (usually known as the ‘stopper period’), pay a coupon on another security or class of securities if it does not pay a dividend on the security in question.
A dividend stopper is generally included in the terms of instruments that provide for ‘discretionary’ returns, for example, a preference share that requires a directors’ declaration. The effect of the dividend stopper is that it effectively counteracts the discretion and places pressure on the entity to pay the required return on the discretionary instrument.
The terms of many discretionary securities also contain a ‘redemption blocker’ which states that, following a deferred coupon, the issuer will not redeem (or call) other securities of equal or lower ranking until coupons have been resumed and paid for a certain period of time (usually 12 months) on the security in question