Old World vs. New World Dividend Model

[Dividend Watcher]

(04-28-2015, 01:45 PM)crimsonghost747 Wrote: The managers job is to make as much profit as possible. Whether that cash is going to dividends, share buybacks, future investments or is getting flushed down the toilet, this doesn't change the pricing model. The point of making the pricing calculations is to achieve a good balance of sales and margin, where that money goes afterwards doesn't matter.

crimsonhost, I think it's a matter of how we're looking at it.

Yes, a manager's job is to make as much money as possible and to do that many decisions are made; is it a 5.5oz chocolate bar vs. 6oz? Do we put 12oz of cereal in the box or 14oz? Do we run our high load machinery in the daytime or do we defer running those pumps/dryers/annealing furnaces/etc. until the off-peak hours in the middle of the night? Do we move the plant to China or keep it in a country/state that has a much higher cost of doing business.

Likewise, do we want the managers to be committed to paying the owners of the business (who put up at least part of the capital to help build the business) a fair share or do we say "screw them" when times get tough? It's a matter of priorities.

The fixed/variable expense model concept is really much more nuanced than a simple go/no go decision. There are many things included in each that can be put in either category or split between them depending on management's view.

(04-28-2015, 01:30 PM)Kerim Wrote: 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.

Yes, dividends are discretionary just like a lot of things they spend their money on. But I'm guessing that the executives in the DG50, the Dividend Champions & Challengers and the Dividend Aristocrats lean a lot more to the "dividends are part of our fixed expenses" mindset than something that's an afterthought. Kerim, you pointed to that and its result in your last sentence above.

I agree, the European model is much more logical looking at it from the company's perspective but I'm not looking at it from the company's perspective. Luckily, there are some European companies that seem to think higher of their shareholders than as an afterthought.

But I digress and don't want to argue about it.

I'm much more interested in how the practices came to be the way they are. Why, since the U.S. was much more of European descent when the industrial powerhouse was being initially built, is it that it's become common to pay a fixed or increasing dividend quarterly versus the European model? Or was it that way in Europe and something changed because of the Industrial Revolution, the War to End All Wars or WWII? So far, in my scant search, I haven't found an answer.