04-28-2015, 01:30 PM
(04-28-2015, 01:10 PM)Dividend Watcher Wrote: On the other hand, does it really make more sense? Some businesses look at expenses as fixed (meaning they have to pay them whether they sell 1 item or a million) versus variable (the costs vary by the quantity they expect to sell). So wouldn't a manager want to know that he has to pay the dividend regardless if the business is going up or down and factor that into their pricing calculations? Afterall, that's one of the bases for calculating prices in a lot of business models. Would certainly please the "owners" of the business to be consistent.
Thanks for taking the initiative to get this open as a new thread -- it is an interesting topic.
I think you make a good point about fixed vs. variable costs. But dividends are discretionary at the end of the day, only really subject to shareholder expectations and pressure. But if management looks at them as fixed, perhaps it provides stronger incentives to ensure sufficient profits to cover.
I guess I can see it either way. If dividends are a percentage of profits, perhaps there is more flexibility and weaker incentives; and if they are a fixed amount, there may be less flexibility and stronger incentives.
In any case, as a DG investor, I prefer knowing (for the most part) what I can expect every quarter.