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+--- Thread: Dividends Are Evil (/showthread.php?tid=316)
Dividends Are Evil - Kerim - 12-17-2013
I’m a big fan of Slate’s Matthew Yglesias, so I read the headline “Dividends Are Evil” for a post of his today with some fear and anxiety. After reading the post, though, I am not really any worse for wear.
He really brings the ire with quotes like these:
Quote: The only problem is that dividends are terrible. Bad for the economy, bad for business, and surprisingly unfavorable to investors. A barbarous relic of a less financially sophisticated era, they’re also indelibly coated with misleading rhetoric that perpetuates sloppy thinking about business, profits, and investment.
His arguments ultimately boil down to things that most dividend growth investors have heard before. The best use of profits is investing to improve the business, after that buybacks are arguably superior to dividends. But then he trots out an old one that has always struck me as a terrible argument against dividends. When GE, for example, pays a dividend, he says,
Quote:“the value of the shareholders’ claim on GE’s assets declines. The money in your pocket used to be in GE’s corporate accounts as a GE asset; all that changes when the funds pass from the corporation’s bank account to yours.”
This is of course technically true, but the argument that dividends reduce the value of the company and hence are nothing more than a transfer from one account to another treat the company as if it is a fixed set of dollars. A company like GE is a dynamic entity constantly generating profits, and the dividends are paid from those profits. So long as the dividends are less than the profits, and are only paid once investment in growing the company is made, then there is no diminution of the company.
And if they did not distribute the excess, it assumes that they can find a productive use for it. If you look at the gigantic piles of cash that many companies are sitting on these days, it is obvious that this is no simple task.
Even if in theory dividends are not the most efficient use of a company’s excess cash, I’ll gladly trade a bit of incremental margin for the “bird in the hand” of cold hard cash hitting my account every quarter.
RE: Dividends Are Evil - NilesMike - 12-17-2013
I'll stick with Mr. John D. Rockefeller on this one: "Do you know the only thing that gives me pleasure? It's to see my dividends coming in."
RE: Dividends Are Evil - KenBob - 12-18-2013
For me, stocks are irrelevant without dividends. I am looking for cash flow. All that stock buybacks do is put in the market timing game, which I don't play.
RE: Dividends Are Evil - Markrichard - 12-18-2013
Seems like an extra ordinary thought from an extra-ordinary expert to me. But, I fear if there will not be dividend profits in stocks, majority of investors will be drawing their hand out from investing in stock market then what will be happen to economy. I guess it will be worsen. According to me it's a general relation of give and take. you are taking investor's money and you are giving them something profitable for them then what's the harm.
RE: Dividends Are Evil - Dan Mac @DGSInvesting - 12-18-2013
There are some companies that certainly feel that rather than pay out dividends, they can put that money to better use growing the company. However, there comes a point where more growth is difficult and what you are actually accomplishing is money waste. At that point, companies need to realize this and begin paying out a portion of profits to shareholders. I'm much rather get part of the companies profits in my bank account while management retains part to grow the company as compared to management automatically thinking they can earn a better return on money than I can. Oftentimes this may not be the case.
RE: Dividends Are Evil - TomK - 12-18-2013
Nothing really to add. I agree with all of you. There are a lot of uncertainties in investing, especially when looking out over long time horizons. I for one find the quarterly cash payments extremely concrete and reassuring. They tell me for sure that my investments are growing the way I want them to.
RE: Dividends Are Evil - abbasjack - 02-24-2014
Its true that there are a lot of uncertainty when you are investing in stock market. However, you should do some practice before investing and analyze things in proper way that happened already. Just check statics of current dividend that you want to purchase. There are several sources that show you results for current price of any dividend.
RE: Dividends Are Evil - hendi_alex - 02-24-2014
"All that stock buybacks do is put in the market timing game"
It would seem to me that most companies should routinely buy their own shares when they are trading at a steep discount to inherent value and that they should be issuing shares whenever their stock is over priced. Problem is, most of the time companies appear to do just the opposite.
RE: Dividends Are Evil - Dividend Watcher - 02-24-2014
Seeking Alpha author "Safraner Investment" wrote another puff piece on this same topic last Thursday. (Can't believe I wasted my penny on reading it.)
The topic is a dead argument as far I'm concerned. Most of the time the thesis is based on the balance sheet alone without taking into account the income (P&L) and cash flow statements. Who, afterall, would go to work for a company and not expect a paycheck? You're just investing your labor rather than your cash. Do you not expect a return? Similarly, you invest your money in a company, do you not expect a return?
Yes, I know that you're not directly giving the company your cash when buying a stock on the open market but if you're going to look at it dogmatically, someone did when that stock was issued and that "someone" is just transferring that claim on the company's assets to you. In effect, it's as if you really gave the cash to the company just xx years later.
We've gone over this topic so much it's really not worth wasting my thoughts on it. If you don't like dividends, don't invest in companies that pay them. Me? I want a return on my investment in MY pocket. So far, it hasn't seemed to hamper the businesses that I invest in.
I know a lot of small business owners. Some spend a lot of time working on their company and some are really hands-off. Yet I don't know a single one that doesn't want cash coming to their pocket on a regular basis.
P.S. Alex, I agree with you. Seems management can't make the smartest calls on a regular basis either.
RE: Dividends Are Evil - fiveoh - 02-24-2014
(02-24-2014, 08:39 AM)hendi_alex Wrote: "All that stock buybacks do is put in the market timing game"
It would seem to me that most companies should routinely buy their own shares when they are trading at a steep discount to inherent value and that they should be issuing shares whenever their stock is over priced. Problem is, most of the time companies appear to do just the opposite.
Easier said than done. Usually they don't have the extra cash when they are trading at a steep discount. Whatever caused the discount is sucking up the cash.
RE: Dividends Are Evil - cannew - 02-26-2014
Do we want everyone interested in dividends? NO, I much prefer to have the majority of investors seeking capital growth and leave me to reap the benefits from dividends & dividend growth. Lets see lots of other similar articles and support for their ideas.