Dividends almost Doubled between 2013 and now

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tesuzuki2002
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Re: Dividends almost Doubled between 2013 and now

Post by tesuzuki2002 » Wed May 15, 2019 11:10 am

MNGopher wrote:
Tue May 14, 2019 9:51 pm
Riprap wrote:
Tue May 14, 2019 9:39 pm
Shsssh! Don't tell anyone. Besides, being a fan a dividends here is heresy.
It's not that people here don't like dividends, they just realize that they are nothing more than taking a couple bucks out of your right pocket and putting it in your left pocket (and possibly paying taxes on it).
Great Analogy! It's always good to have balance in case one of your pockets gets a hole in it!

SovereignInvestor
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Re: Dividends almost Doubled between 2013 and now

Post by SovereignInvestor » Wed May 15, 2019 11:29 am

The GE shareholder who sold appreciated shares when they did the buybacks is the same boat as if they got more dividends. The appreciated shares at most would be fully taxed at LTCG rate whicheck is same as dividend rate. The entire dividend would be taxed whereas only the gain portion of appreciated shares would be taxed.

Buybacks are better...they are always more tax efficient and if the stock isn't overvalued and your want to reinvest then it's done tax free.

Dividend taxes are often total 20% or higher...as long as buyback is done at less than FV +20% it helps shareholders and if done above that...then sell the corresponding number of shares and it still helps shareholders save some taxes.

Everyone citin stocks buying back in big way at very high prices. If you sold your stock in same share as they did buyback you would been better than if they paid dividend.

I agree though...overall I wish more firms would have more discipline. Buyback run rate is around 3% of SPX market cap per year.

I wish they'd do 2% automatic ally and the remaining 1% only do when market is beaten down...when theit shares are higher then use it to pay down debt. When shares are low...go full throttle and maybe even consider re leveraging if leverage is lower from previously paying down debt.

Almost no firms have this sort of discipline.

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XdUzHa3NtSeIkBkIGPVn
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Re: Dividends almost Doubled between 2013 and now

Post by XdUzHa3NtSeIkBkIGPVn » Wed May 15, 2019 12:00 pm

Say dividends are desirable because they take cash away from executives that would spend it inefficiently. Then stock buybacks should be even more desirable because they do the same thing, but you'd pay less taxes on it.

Buybacks also give the investors more flexibility: If you need more than the buyback, you can sell a little more stock; if you need less, sell less or none at all.

Importantly, they also give flexibility to company management. There's a strong pressure not to cut dividends, which also creates pressure not to increase dividends too much, so you're not "locked-in" to a higher dividend next year. Maybe if left to their own devices, they would have returned (in buybacks) 90% of earnings one year, then 0% the next to finance a new plant without issuing debt, leaving investors better off overall.

dkturner
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Re: Dividends almost Doubled between 2013 and now

Post by dkturner » Wed May 15, 2019 12:02 pm

BJJ_GUY wrote:
Wed May 15, 2019 9:55 am
dkturner wrote:
Wed May 15, 2019 9:00 am
lostdog wrote:
Wed May 15, 2019 8:36 am
Should dividend investors be concerned about the increased popularity of share buybacks?
Dividend increases are generally favored by companies because they are attractive to both existing shareholders and potential new purchasers of their common stock. Share repurchases make it possible for company managements to increase dividends without allocating more overall $. The increased popularity of share buybacks may be responsible for a significant amount of the recent increase in dividend payments.
If a company has $5 in free cash they can (among other things) repurchase shares OR pay it to shareholders via a dividend. However, the $5 cannot be used twice, as in the way detailed in the bold-quote above.
I’m not a mathematician but if a company allocates $5 to paying dividends to its shareholders it will pay $.50 per share if it has 10 shares outstanding and $.625 per share after it repurchases 2 shares. Most companies don’t use all of their free cash for either dividend payments OR share repurchases, they spread it around.

PVW
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Re: Dividends almost Doubled between 2013 and now

Post by PVW » Wed May 15, 2019 12:12 pm

skor99 wrote:
Tue May 14, 2019 9:30 pm
I am seeing a faster growth of rate of dividends than inflation in my portfolio.
I don't think inflation is a good benchmark for dividend growth. A better benchmark would be earnings growth, but you might still need to adjust for changes in dividend rate.

BJJ_GUY
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Re: Dividends almost Doubled between 2013 and now

Post by BJJ_GUY » Wed May 15, 2019 12:23 pm

dkturner wrote:
Wed May 15, 2019 12:02 pm

I’m not a mathematician but if a company allocates $5 to paying dividends to its shareholders it will pay $.50 per share if it has 10 shares outstanding and $.625 per share after it repurchases 2 shares. Most companies don’t use all of their free cash for either dividend payments OR share repurchases, they spread it around.
Incorrect.

To answer this question with variables beyond a binary decision completely changes the discussion far far beyond this very basic topic.

Without other variables, consider the $5 a company has earmarked for the use of dividend payments and/or share repurchases. As you stated, the company can mix and match the two options however they please. This still makes you arithmetic incorrect.

1.) $5 for 10 shares does in fact equal $0.50 per share
2.) If 2 shares are repurchased, then we have no idea what the dividend per share is because we don't know the price paid for the repurchase (thus we don't know how much of the $5 was used, and is no longer available to pay via dividend).

Your example only makes sense if the stock price trades at $0.00

garlandwhizzer
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Re: Dividends almost Doubled between 2013 and now

Post by garlandwhizzer » Wed May 15, 2019 12:56 pm

Do not expect dividends to double again over the next 6 years. The increase in dividends and buybacks was directly caused to two things that are likely one time events having little to do with economic fundamentals other than tax policy. First, as others have pointed out, a significant drop in corporate tax rates. Second the repatriation back into the US of profits held in foreign countries by corporations for tax reasons. There was a lower rate than even the lower corporate tax rate in 2018 for bringing this money back to the US. Responding to this, in the first 2 quarters of 2018, US corporations brought back $465 billion from overseas. In short for tax policy reasons a huge amount of cash suddenly appeared on corporate balance sheets and they had to do something with it. It was hoped that this would spur massive increases in employment and capital goods spending but in practice it has mostly been spent on increasing dividends and corporate stock buybacks, giving money back to investors. Repatriation of foreign profits has now slowed now to a trickle. The sugar high is over and dividends and buybacks are unlikely to continue their rapid growth going forward.

One more point, the fact that corporations chose to give money back to shareholders (dividends, buybacks) rather than massively expand their production tells you that executives took a dim view about the chances for persistent and robustly growing aggregate consumer demand in the US. They would have invested in plant and equipment to meet that demand and increase their long term profit growth if they believed that the sugar high was going to last long term.

Garland Whizzer

ohai
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Re: Dividends almost Doubled between 2013 and now

Post by ohai » Wed May 15, 2019 1:18 pm

Is OP talking about dividend absolute amounts or dividend rates? He mentioned that part of the growth is due to him investing more, so presumably, he means absolute rates.

If that is the case, then it should be expected that dividend payments have increased given stocks have almost doubled since 2013. In fact, SPX trailing dividend percentages have decreased over that period....

pretzelfisch
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Re: Dividends almost Doubled between 2013 and now

Post by pretzelfisch » Wed May 15, 2019 1:39 pm

BJJ_GUY wrote:
Wed May 15, 2019 10:51 am
skor99 wrote:
Wed May 15, 2019 10:36 am
Maybe if there were strict standards on how buy backs should be used to benefit the stockholders instead of primarily benefitting the high executives , then buybacks might be better. Is there any analysis available on how buybacks have affected the stock price positively? So instead of getting a 3% dividend , if there is a buyback then does the stock price go up by 3% every thing else being equal ?
Price reaction isn't the best way to answer that question. More intuitively, share buybacks result in an increased ownership stake for stockholders. With this basic premise, this question becomes one of opportunity cost: Whatever you do to reinvestment dividends vs return from a company that (post repurchase) you now own a slightly larger % of
How do you own a larger % a buy back doesn't make the previous shares disappear does it? Typically the bought stock is handed to some employee as comp. What am I missing?

SovereignInvestor
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Re: Dividends almost Doubled between 2013 and now

Post by SovereignInvestor » Wed May 15, 2019 1:43 pm

The buyback reduces shares outstanding RELATIVE to if it had not occurred. If they buyback 5% of shares you're ownership rises 1/0.95-1 or around 5%. If they issue 5% of shares...well yeah your ownershup didn't increase its still the same but it's 5% greater than if they didn't do the buyback.

So selling 5% of shares after the buyback leaves you with 5% less ownership than before...which is the same if they never did a buyback and you never sold shares but they dilute/issue 5% shares.

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Riprap
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Re: Dividends almost Doubled between 2013 and now

Post by Riprap » Wed May 15, 2019 2:25 pm

My final thoughts on the subject of dividends, tax efficiency, and the efficient use of cash by management...

"In theory, there is no difference between theory and practice. In practice there is."

Yogi Berra

BJJ_GUY
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Re: Dividends almost Doubled between 2013 and now

Post by BJJ_GUY » Wed May 15, 2019 2:38 pm

SovereignInvestor wrote:
Wed May 15, 2019 1:43 pm
The buyback reduces shares outstanding RELATIVE to if it had not occurred. If they buyback 5% of shares you're ownership rises 1/0.95-1 or around 5%. If they issue 5% of shares...well yeah your ownershup didn't increase its still the same but it's 5% greater than if they didn't do the buyback.

So selling 5% of shares after the buyback leaves you with 5% less ownership than before...which is the same if they never did a buyback and you never sold shares but they dilute/issue 5% shares.
Yes. This ^

BigMoneyNoWhammies
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Re: Dividends almost Doubled between 2013 and now

Post by BigMoneyNoWhammies » Wed May 15, 2019 3:38 pm

fennewaldaj wrote:
Wed May 15, 2019 5:32 am
JoMoney wrote:
Tue May 14, 2019 10:05 pm


If you believe the management is on average "squandering" the money that would be better off paid out as dividends, you really shouldn't be buying the stock of that company at all (or at a minimum be petitioning the board to change the management).
Thats not necessary true though right? Some companies don't have projects to invest in that are worth it. Paying out dividends in this case is in the interest of the shareholders. That doesn't imply that management is doing anything wrong. Not every company has enough worthwhile projects to spend all their earnings on.
Devil's advocate: then how do you justify Berkshire's years long drought of major (for them) expenditures on acquisitions absent a dividend?

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Phineas J. Whoopee
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Re: Dividends almost Doubled between 2013 and now

Post by Phineas J. Whoopee » Wed May 15, 2019 3:46 pm

Riprap wrote:
Wed May 15, 2019 2:25 pm
My final thoughts on the subject of dividends, tax efficiency, and the efficient use of cash by management...

"In theory, there is no difference between theory and practice. In practice there is."

Yogi Berra
Translation: "I'm taking my baseball and going home." One can't reason a person out of a position they did not reason themselves into. You can think and post whatever you like, but if your argument is unconvincing, as it is, it won't sway many others.

We are not against dividends. We're only against misunderstandings about dividends.

I'm staying here. With my baseball.

PJW
Last edited by Phineas J. Whoopee on Wed May 15, 2019 3:49 pm, edited 1 time in total.

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Dialectical Investor
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Re: Dividends almost Doubled between 2013 and now

Post by Dialectical Investor » Wed May 15, 2019 3:48 pm

BigMoneyNoWhammies wrote:
Wed May 15, 2019 3:38 pm
fennewaldaj wrote:
Wed May 15, 2019 5:32 am
JoMoney wrote:
Tue May 14, 2019 10:05 pm


If you believe the management is on average "squandering" the money that would be better off paid out as dividends, you really shouldn't be buying the stock of that company at all (or at a minimum be petitioning the board to change the management).
Thats not necessary true though right? Some companies don't have projects to invest in that are worth it. Paying out dividends in this case is in the interest of the shareholders. That doesn't imply that management is doing anything wrong. Not every company has enough worthwhile projects to spend all their earnings on.
Devil's advocate: then how do you justify Berkshire's years long drought of major (for them) expenditures on acquisitions absent a dividend?
BRK shareholders trust BRK management's patience in finding a good deal so much they are willing to forgoe returns for many years to reap rewards later on. Perhaps recent acquisitions were due to one party or the other losing patience.

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Phineas J. Whoopee
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Re: Dividends almost Doubled between 2013 and now

Post by Phineas J. Whoopee » Wed May 15, 2019 3:52 pm

Dialectical Investor wrote:
Wed May 15, 2019 3:48 pm
BigMoneyNoWhammies wrote:
Wed May 15, 2019 3:38 pm
fennewaldaj wrote:
Wed May 15, 2019 5:32 am
JoMoney wrote:
Tue May 14, 2019 10:05 pm


If you believe the management is on average "squandering" the money that would be better off paid out as dividends, you really shouldn't be buying the stock of that company at all (or at a minimum be petitioning the board to change the management).
Thats not necessary true though right? Some companies don't have projects to invest in that are worth it. Paying out dividends in this case is in the interest of the shareholders. That doesn't imply that management is doing anything wrong. Not every company has enough worthwhile projects to spend all their earnings on.
Devil's advocate: then how do you justify Berkshire's years long drought of major (for them) expenditures on acquisitions absent a dividend?
BRK shareholders trust BRK management's patience in finding a good deal so much they are willing to forgoe returns for many years to reap rewards later on. Perhaps recent acquisitions were due to one party or the other losing patience.
Really? Share price changes aren't part of total return?

PJW
Last edited by Phineas J. Whoopee on Wed May 15, 2019 3:55 pm, edited 1 time in total.

hale2
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Re: Dividends almost Doubled between 2013 and now

Post by hale2 » Wed May 15, 2019 3:55 pm

XdUzHa3NtSeIkBkIGPVn wrote:
Wed May 15, 2019 12:00 pm
Say dividends are desirable because they take cash away from executives that would spend it inefficiently. Then stock buybacks should be even more desirable because they do the same thing, but you'd pay less taxes on it.

Buybacks also give the investors more flexibility: If you need more than the buyback, you can sell a little more stock; if you need less, sell less or none at all.

Importantly, they also give flexibility to company management. There's a strong pressure not to cut dividends, which also creates pressure not to increase dividends too much, so you're not "locked-in" to a higher dividend next year. Maybe if left to their own devices, they would have returned (in buybacks) 90% of earnings one year, then 0% the next to finance a new plant without issuing debt, leaving investors better off overall.
This is an article from McKinsey that concludes buybacks aren't necessarily a good thing. Granted, the article is 14 years old, but I think it still applies.
https://www.mckinsey.com/business-funct ... c1-aZTmTPw

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Dialectical Investor
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Re: Dividends almost Doubled between 2013 and now

Post by Dialectical Investor » Wed May 15, 2019 3:56 pm

Phineas J. Whoopee wrote:
Wed May 15, 2019 3:52 pm
Dialectical Investor wrote:
Wed May 15, 2019 3:48 pm
BigMoneyNoWhammies wrote:
Wed May 15, 2019 3:38 pm
fennewaldaj wrote:
Wed May 15, 2019 5:32 am
JoMoney wrote:
Tue May 14, 2019 10:05 pm


If you believe the management is on average "squandering" the money that would be better off paid out as dividends, you really shouldn't be buying the stock of that company at all (or at a minimum be petitioning the board to change the management).
Thats not necessary true though right? Some companies don't have projects to invest in that are worth it. Paying out dividends in this case is in the interest of the shareholders. That doesn't imply that management is doing anything wrong. Not every company has enough worthwhile projects to spend all their earnings on.
Devil's advocate: then how do you justify Berkshire's years long drought of major (for them) expenditures on acquisitions absent a dividend?
BRK shareholders trust BRK management's patience in finding a good deal so much they are willing to forgoe returns for many years to reap rewards later on. Perhaps recent acquisitions were due to one party or the other losing patience.
Really? Share price changes aren't part of total return?

PJW
Did not intend to convey that. I thought BigMoneyNoWhammies was referring to BRK sitting on massive cash reserves that, while surely producing higher share prices than if the cash did not exist, nevertheless were value-destroying compared to investor's long-run return expectations/requirements, if the cash is not ultimately put to more productive use.

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Toons
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Re: Dividends almost Doubled between 2013 and now

Post by Toons » Wed May 15, 2019 4:24 pm

MNGopher wrote:
Tue May 14, 2019 9:51 pm
Riprap wrote:
Tue May 14, 2019 9:39 pm
Shsssh! Don't tell anyone. Besides, being a fan a dividends here is heresy.
It's not that people here don't like dividends, they just realize that they are nothing more than taking a couple bucks out of your right pocket and putting it in your left pocket (and possibly paying taxes on it).

"Warren Buffett has always been a fan of companies that pay dividends. In his annual letter released Saturday, Buffett said Berkshire Hathaway was paid $3.8 billion in dividends in 2018, a number that he expects will increase in 2019."

:moneybag :moneybag
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

AlohaJoe
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Re: Dividends almost Doubled between 2013 and now

Post by AlohaJoe » Wed May 15, 2019 9:16 pm

LFS1234 wrote:
Wed May 15, 2019 8:30 am
That is a good point. Do the dividend drops you note (below) comply with these standards? Are they real or just nominal? Could you cite a source?
The chart shows inflation-adjusted dividends. The data comes from Robert Shiller's website.
It is also relevant that a long time ago, corporations used to pay out a much larger proportion of their annual earnings in dividends
Sure, the way dividends get paid out is a social construction, not a law of nature, so expecting their behaviour to be "stable" seems risky. In Japan, for instance, they historically have never really paid dividends. The 20-year average is just 1.6% dividend yield. And it isn't because they are doing share buybacks or don't have cash. It is just their corporate culture. Who is to say US CFOs couldn't decide to act more like Japanese CFOs over the next 20 years?

Stormbringer
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Re: Dividends almost Doubled between 2013 and now

Post by Stormbringer » Thu May 16, 2019 7:40 am

Dividends and buybacks are tricky things.

Companies that pay continuous and growing dividends sometimes find themselves caught in a trap where the dividend becomes sacrosanct, and can never be cut for any reason without sending a dreadful signal to the market that the company is in trouble, followed by a precipitous price collapse as dividend investors flee the stock. This causes companies to miss opportunities to invest that cash or buy back shares, or they may accumulate mountains of debt rather than cut the dividend (looking at you, AT&T).

Buybacks have other issues. While they are more tax efficient than dividends, they may encourage bad behavior by management whose compensation is frequently tied to share prices. Berkshire only buys back shares when they deem them to be cheap. Other companies sometimes buy no matter the price, which is great for management's bonuses and stock options, but bad for long-term shareholders.

Of course in the absence of dividends there is another risk: bad investments. If that cash is burning a hole in management's pocket, they might do foolish things with it, like make bad acquisitions.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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gilgamesh
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Re: Dividends almost Doubled between 2013 and now

Post by gilgamesh » Thu May 16, 2019 7:54 am

vineviz wrote:
Wed May 15, 2019 10:18 am
gilgamesh wrote:
Wed May 15, 2019 10:02 am
Are you saying all dividend companies already knows their profit, what they need for re-investing years in advance and pays out some of the difference in dividends?
“Know” might be a tad strong, since none of us “know” the future.

But otherwise, yes, this is what companies do. They evaluate their growth opportunities, evaluate the ROI in the various uses of cash flow, and decide what to do with the cash.
How often do dividend paying companies evaluate the appropriate amount of dividends to pay?

Is there anything superior about deciding to pay out dividends?

Companies who decide on a dividend may compromise projects with higher ROI for not wanting to reduce dividends. Companies that do not pay dividends may have more cash than necessary in the books. Is one better than the other?

Historically there has been no advantage over either type, right?

dkturner
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Re: Dividends almost Doubled between 2013 and now

Post by dkturner » Thu May 16, 2019 9:23 am

pretzelfisch wrote:
Wed May 15, 2019 1:39 pm
BJJ_GUY wrote:
Wed May 15, 2019 10:51 am
skor99 wrote:
Wed May 15, 2019 10:36 am
Maybe if there were strict standards on how buy backs should be used to benefit the stockholders instead of primarily benefitting the high executives , then buybacks might be better. Is there any analysis available on how buybacks have affected the stock price positively? So instead of getting a 3% dividend , if there is a buyback then does the stock price go up by 3% every thing else being equal ?
Price reaction isn't the best way to answer that question. More intuitively, share buybacks result in an increased ownership stake for stockholders. With this basic premise, this question becomes one of opportunity cost: Whatever you do to reinvestment dividends vs return from a company that (post repurchase) you now own a slightly larger % of
How do you own a larger % a buy back doesn't make the previous shares disappear does it? Typically the bought stock is handed to some employee as comp. What am I missing?
When looking at share repurchases it’s important to look at the net reduction in shares, not the gross buyback number. Many large companies routinely reduce outstanding shares, even after substantial stock option awards. Take a look at Apple and Exxon as examples of this trend.

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XdUzHa3NtSeIkBkIGPVn
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Re: Dividends almost Doubled between 2013 and now

Post by XdUzHa3NtSeIkBkIGPVn » Thu May 16, 2019 2:40 pm

hale2 wrote:
Wed May 15, 2019 3:55 pm
XdUzHa3NtSeIkBkIGPVn wrote:
Wed May 15, 2019 12:00 pm
Say dividends are desirable because they take cash away from executives that would spend it inefficiently. Then stock buybacks should be even more desirable because they do the same thing, but you'd pay less taxes on it.

Buybacks also give the investors more flexibility: If you need more than the buyback, you can sell a little more stock; if you need less, sell less or none at all.

Importantly, they also give flexibility to company management. There's a strong pressure not to cut dividends, which also creates pressure not to increase dividends too much, so you're not "locked-in" to a higher dividend next year. Maybe if left to their own devices, they would have returned (in buybacks) 90% of earnings one year, then 0% the next to finance a new plant without issuing debt, leaving investors better off overall.
This is an article from McKinsey that concludes buybacks aren't necessarily a good thing. Granted, the article is 14 years old, but I think it still applies.
https://www.mckinsey.com/business-funct ... c1-aZTmTPw
Thanks for sharing. I agree with everything in that article, but that's the wrong way to frame it. Of course buybacks don't increase company value or improve its earnings prospects, they're not meant to (dividends don't do those things, either).

It's not buybacks vs investing in a new plant, but buybacks vs dividends. For the purpose of returning cash to shareholders, buybacks are more flexible for management and efficient for taxes. Dividends are mostly a historical and psychological leftover.

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skor99
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Re: Dividends almost Doubled between 2013 and now

Post by skor99 » Thu May 16, 2019 4:03 pm

To me, regular dividends force a company to keep performing well, which buybacks do not. As some have already mentioned that companies are loathe to cut dividends and the big name dividend aristocrats actually take pride in increasing dividends every year. Buybacks can be decreased anytime without any repercussions to the company but that has to be a good reason for decreasing dividends.

Also I agree with the previous poster mentioning that The choice isn’t between a company investing in new factories vs increasing dividends , of course it should invest in new growth avenues. Choice is between paying a dividend and letting the shareholder make a decision of what to do with the money vs financial shenanigans benefiting only the high level executives using buybacks ( which is what they have seem to become at a lot of companies.)

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gilgamesh
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Re: Dividends almost Doubled between 2013 and now

Post by gilgamesh » Thu May 16, 2019 4:44 pm

skor99 wrote:
Thu May 16, 2019 4:03 pm
To me, regular dividends force a company to keep performing well, which buybacks do not. As some have already mentioned that companies are loathe to cut dividends and the big name dividend aristocrats actually take pride in increasing dividends every year. Buybacks can be decreased anytime without any repercussions to the company but that has to be a good reason for decreasing dividends.

Also I agree with the previous poster mentioning that The choice isn’t between a company investing in new factories vs increasing dividends , of course it should invest in new growth avenues. Choice is between paying a dividend and letting the shareholder make a decision of what to do with the money vs financial shenanigans benefiting only the high level executives using buybacks ( which is what they have seem to become at a lot of companies.)
You know that dividends are coming out of the price of your stock you are holding right?

No company wants it’s stock price to keep declining, so they are forced to perform well no matter what...dividends are paid out even when stock prices are in decline, and thus make them decline even more. Dividends do not come from profits alone, they are just taken out of the stock price.

RAchip
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Re: Dividends almost Doubled between 2013 and now

Post by RAchip » Sat May 18, 2019 10:18 pm

:arrow:
gilgamesh wrote:
Thu May 16, 2019 4:44 pm
skor99 wrote:
Thu May 16, 2019 4:03 pm
To me, regular dividends force a company to keep performing well, which buybacks do not. As some have already mentioned that companies are loathe to cut dividends and the big name dividend aristocrats actually take pride in increasing dividends every year. Buybacks can be decreased anytime without any repercussions to the company but that has to be a good reason for decreasing dividends.

Also I agree with the previous poster mentioning that The choice isn’t between a company investing in new factories vs increasing dividends , of course it should invest in new growth avenues. Choice is between paying a dividend and letting the shareholder make a decision of what to do with the money vs financial shenanigans benefiting only the high level executives using buybacks ( which is what they have seem to become at a lot of companies.)
You know that dividends are coming out of the price of your stock you are holding right?

No company wants it’s stock price to keep declining, so they are forced to perform well no matter what...dividends are paid out even when stock prices are in decline, and thus make them decline even more. Dividends do not come from profits alone, they are just taken out of the stock price.
Stock prices are determined based on supply and demand for particular shares not the amount of cash or the amount of earnings or a dcf or anything else. Cash and earnings factor into theoretical academic valuations of companies but actual market price is determined by basic supply and demand. There are companies with market caps in the billions that have never produced a penny of earnings and indeed have only ever lost billions of dollars. The repeated assertion around here that “dividends automatically reduce the stock price” is misguided and confused. On the contrary, dividends usually increase the demand for particular stocks and drive up the stock price. That is why ever single company in the DJIA pays dividends.

Chip
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Re: Dividends almost Doubled between 2013 and now

Post by Chip » Sun May 19, 2019 4:31 am

RAchip wrote:
Sat May 18, 2019 10:18 pm
Stock prices are determined based on supply and demand for particular shares not the amount of cash or the amount of earnings or a dcf or anything else. [...]
Cash and earnings factor into theoretical academic valuations of companies but actual market price is determined by basic supply and demand. There are companies with market caps in the billions that have never produced a penny of earnings and indeed have only ever lost billions of dollars. The repeated assertion around here that “dividends automatically reduce the stock price” is misguided and confused. On the contrary, dividends usually increase the demand for particular stocks and drive up the stock price.
I beg to differ.

If what you say above is true, please explain why the stock price of Microsoft dropped approximately $3 on the day after it went ex-dividend on a $3 dividend payment. And stayed down about $3 for quite a while. According to your view the price should have risen.

Here's a hint. You can't. Note that the "demand" you mention above is from people who understand the real effects of dividend payments, earnings, cash flows, as well as many other factors. They routinely adjust what they are willing to pay for a stock based on cash that has left the company due to dividend payments.

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gilgamesh
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Re: Dividends almost Doubled between 2013 and now

Post by gilgamesh » Sun May 19, 2019 9:00 am

RAchip wrote:
Sat May 18, 2019 10:18 pm
:arrow:
gilgamesh wrote:
Thu May 16, 2019 4:44 pm
skor99 wrote:
Thu May 16, 2019 4:03 pm
To me, regular dividends force a company to keep performing well, which buybacks do not. As some have already mentioned that companies are loathe to cut dividends and the big name dividend aristocrats actually take pride in increasing dividends every year. Buybacks can be decreased anytime without any repercussions to the company but that has to be a good reason for decreasing dividends.

Also I agree with the previous poster mentioning that The choice isn’t between a company investing in new factories vs increasing dividends , of course it should invest in new growth avenues. Choice is between paying a dividend and letting the shareholder make a decision of what to do with the money vs financial shenanigans benefiting only the high level executives using buybacks ( which is what they have seem to become at a lot of companies.)
You know that dividends are coming out of the price of your stock you are holding right?

No company wants it’s stock price to keep declining, so they are forced to perform well no matter what...dividends are paid out even when stock prices are in decline, and thus make them decline even more. Dividends do not come from profits alone, they are just taken out of the stock price.
Stock prices are determined based on supply and demand for particular shares not the amount of cash or the amount of earnings or a dcf or anything else. Cash and earnings factor into theoretical academic valuations of companies but actual market price is determined by basic supply and demand. There are companies with market caps in the billions that have never produced a penny of earnings and indeed have only ever lost billions of dollars. The repeated assertion around here that “dividends automatically reduce the stock price” is misguided and confused. On the contrary, dividends usually increase the demand for particular stocks and drive up the stock price. That is why ever single company in the DJIA pays dividends.
I agree with your first point...I tried to shorten my message and I see how it changed the message. Obviously stock prices is not a mere reflection of earnings.

But, totally disagree with dividends not reducing stock price - it’s factually wrong. This faulty thinking does indeed make dividend paying stocks appear to be more preferable (there’s always something :D ) - how nice would it be for the stock price to catch up with each dividend payment.
Last edited by gilgamesh on Sun May 19, 2019 1:02 pm, edited 1 time in total.

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vineviz
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Re: Dividends almost Doubled between 2013 and now

Post by vineviz » Sun May 19, 2019 9:13 am

RAchip wrote:
Sat May 18, 2019 10:18 pm
Stock prices are determined based on supply and demand for particular shares not the amount of cash or the amount of earnings or a dcf or anything else.
And demand is based almost entirely on expectations about future cash flows.
RAchip wrote:
Sat May 18, 2019 10:18 pm
There are companies with market caps in the billions that have never produced a penny of earnings and indeed have only ever lost billions of dollars.
Sure, but investors (rightly or wrongly) definitely expect these companies to produce earnings in the future. Or they expect OTHER investors to expect these companies to produce earnings in the future. And so on.

It always comes back to the company's future cash flows.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Dividends almost Doubled between 2013 and now

Post by GrowthSeeker » Sun May 19, 2019 9:15 am

Gedanken experiment:
Imagine every company in the S&P500 could be given a Squander Score: those whose management will squander their profits are given a score of 1, whereas those with "smart" management (e.g. BRK) who reinvest their profits wisely are given a Squander Score of minus 1.
In an ideal S&P500 universe, we'd like the Squanderer companies to pay large dividends and keep their share price about constant, but those with a score of minus 1 to pay no dividends. In the ideal world, we would want to minimize the grand sum (summed over all companies) of the product of "Squander Score" times "dividend rate".
But in bizarro universe, all companies have management which makes dividend payment decisions the opposite way.

Is the actual S&P500 index (or pick any other index) closer to "ideal" or "bizarro" when it comes to the averaged Squander-Score-weighted dividend rate? Because this should determine whether we "like" or "dislike" dividends.

Do different indices: small cap value, emerging markets, etc have better or worse squander-weighted dividend rates and how much does this affect an index's over- or under-performance?
Just because you're paranoid doesn't mean they're NOT out to get you.

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JoMoney
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Re: Dividends almost Doubled between 2013 and now

Post by JoMoney » Sun May 19, 2019 12:33 pm

With all this talk of Buy-Backs being "squandered", I think it's worth pointing out that some markets - Emerging Markets in particular, have suffered from the reverse problem... diluting equity with new stock issues...
As far as S&P500 stocks go, there is an S&P index that specifically tracks companies doing lots of buy-backs, and it seems to do just fine relative to the S&P 500
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Re: Dividends almost Doubled between 2013 and now

Post by arcticpineapplecorp. » Sun May 19, 2019 1:10 pm

Riprap wrote:
Tue May 14, 2019 10:21 pm
JoMoney wrote:
Tue May 14, 2019 10:05 pm
If you believe the management is on average "squandering" the money that would be better off paid out as dividends, you really shouldn't be buying the stock of that company at all (or at a minimum be petitioning the board to change the management).
The squandering is normally revealed after the fact. Plus, it would be difficult to do as you suggest as a passive investor.

I'm simply stating that returning shareholder's equity isn't always such a bad thing.
Enron, World Com and Lehman Bros. all paid dividends. Are you suggesting dividends are good because you get some of your money back before you lose it all?
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Re: Dividends almost Doubled between 2013 and now

Post by 3CT_Paddler » Sun May 19, 2019 1:49 pm

garlandwhizzer wrote:
Wed May 15, 2019 12:56 pm
It was hoped that this would spur massive increases in employment and capital goods spending but in practice it has mostly been spent on increasing dividends and corporate stock buybacks, giving money back to investors. Repatriation of foreign profits has now slowed now to a trickle. The sugar high is over and dividends and buybacks are unlikely to continue their rapid growth going forward.
Unemployment is at a 50 year low... When the corporate tax reform was started unemployment was already fairly low... There was not a massive increase in employment to be had. My boots on the ground reaction of the firm I work for and other similar firms I see tells me that there is a bidding war for talent across many different industries.

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Re: Dividends almost Doubled between 2013 and now

Post by 3CT_Paddler » Sun May 19, 2019 1:58 pm

JoMoney wrote:
Tue May 14, 2019 10:39 pm

The 'boglehead way' is for those of us who don't have better information, and for better or worse have to accept that the corporate managers on average are making the best decisions with the information they have, and that the mutual fund management (to the best that they can) are using our proxy votes to form boards that hire good management.
JoMoney, the 'boglehead way' is that the market does a pretty good job of determining which companies are making profitable choices and which ones are not. It does not assume that corporate managers on average are making the best decisions with the information they have.

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Re: Dividends almost Doubled between 2013 and now

Post by OnTrack » Sun May 19, 2019 3:15 pm

3CT_Paddler wrote:
Sun May 19, 2019 1:49 pm
garlandwhizzer wrote:
Wed May 15, 2019 12:56 pm
It was hoped that this would spur massive increases in employment and capital goods spending but in practice it has mostly been spent on increasing dividends and corporate stock buybacks, giving money back to investors. Repatriation of foreign profits has now slowed now to a trickle. The sugar high is over and dividends and buybacks are unlikely to continue their rapid growth going forward.
Unemployment is at a 50 year low... When the corporate tax reform was started unemployment was already fairly low... There was not a massive increase in employment to be had. My boots on the ground reaction of the firm I work for and other similar firms I see tells me that there is a bidding war for talent across many different industries.
Your observation is anecdotal. Here are BLS figures for wages (Apr 2019) https://www.bls.gov/news.release/pdf/realer.pdf
"Real average weekly earnings decreased 0.4 percent over the month due to the change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek."
"Real average hourly earnings increased 1.2 percent, seasonally adjusted, from April 2018 to April 2019. The change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 0.9-percent increase in real average weekly earnings over this period."
Hardly seems like a bidding war for workers.

Here is some information on unemployment beyond the headline numbers (Apr 2019) https://theotrade.com/april-jobs-report ... -was-weak/
"even though job creation was 263,000, there were actually 103,000 less people employed this month versus last month."
This is despite the working age population increasing by 156,000. There were 5.8 million officially unemployed and 4.7 million working part time that couldn't find full time work.

Also see: https://money.usnews.com/investing/news ... -has-slack
"Federal Reserve Bank President Neel Kashkari repeated on Tuesday (March 2019) his view that the U.S. job market still has room for improvement, citing slow wage growth and the millions of Americans that have reentered the job market in recent years."

"I think there is still slack in the labor market, and until we see wages growth really pick up I’m going to believe that there are still more Americans out there," Kashkari said in testimony to the Minnesota Senate Finance Committee. "I'm very focused on wages as the best indicator overall of how tight is the labor force."
Last edited by OnTrack on Sun May 19, 2019 3:30 pm, edited 2 times in total.

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Riprap
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Re: Dividends almost Doubled between 2013 and now

Post by Riprap » Sun May 19, 2019 3:28 pm

arcticpineapplecorp. wrote:
Sun May 19, 2019 1:10 pm
Enron, World Com and Lehman Bros. all paid dividends. Are you suggesting dividends are good because you get some of your money back before you lose it all?
Yes.

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Re: Dividends almost Doubled between 2013 and now

Post by Dialectical Investor » Sun May 19, 2019 3:34 pm

Riprap wrote:
Sun May 19, 2019 3:28 pm
arcticpineapplecorp. wrote:
Sun May 19, 2019 1:10 pm
Enron, World Com and Lehman Bros. all paid dividends. Are you suggesting dividends are good because you get some of your money back before you lose it all?
Yes.
This is not a logical reason to prefer dividends. Presumably you are reinvesting your dividends, so you will lose it all anyway. If you're not reinvesting your dividends, you are using dividends to adjust your asset allocation, which you could do anytime you wish.

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Riprap
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Re: Dividends almost Doubled between 2013 and now

Post by Riprap » Sun May 19, 2019 4:23 pm

Dialectical Investor wrote:
Sun May 19, 2019 3:34 pm
This is not a logical reason to prefer dividends. Presumably you are reinvesting your dividends, so you will lose it all anyway. If you're not reinvesting your dividends, you are using dividends to adjust your asset allocation, which you could do anytime you wish.
I'm illogical like a lot of other people. :happy

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Re: Dividends almost Doubled between 2013 and now

Post by 3CT_Paddler » Sun May 19, 2019 7:12 pm

OnTrack wrote:
Sun May 19, 2019 3:15 pm
3CT_Paddler wrote:
Sun May 19, 2019 1:49 pm
garlandwhizzer wrote:
Wed May 15, 2019 12:56 pm
It was hoped that this would spur massive increases in employment and capital goods spending but in practice it has mostly been spent on increasing dividends and corporate stock buybacks, giving money back to investors. Repatriation of foreign profits has now slowed now to a trickle. The sugar high is over and dividends and buybacks are unlikely to continue their rapid growth going forward.
Unemployment is at a 50 year low... When the corporate tax reform was started unemployment was already fairly low... There was not a massive increase in employment to be had. My boots on the ground reaction of the firm I work for and other similar firms I see tells me that there is a bidding war for talent across many different industries.
Your observation is anecdotal. Here are BLS figures for wages (Apr 2019) https://www.bls.gov/news.release/pdf/realer.pdf
"Real average weekly earnings decreased 0.4 percent over the month due to the change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek."
"Real average hourly earnings increased 1.2 percent, seasonally adjusted, from April 2018 to April 2019. The change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 0.9-percent increase in real average weekly earnings over this period."
Hardly seems like a bidding war for workers.

Here is some information on unemployment beyond the headline numbers (Apr 2019) https://theotrade.com/april-jobs-report ... -was-weak/
"even though job creation was 263,000, there were actually 103,000 less people employed this month versus last month."
This is despite the working age population increasing by 156,000. There were 5.8 million officially unemployed and 4.7 million working part time that couldn't find full time work.

Also see: https://money.usnews.com/investing/news ... -has-slack
"Federal Reserve Bank President Neel Kashkari repeated on Tuesday (March 2019) his view that the U.S. job market still has room for improvement, citing slow wage growth and the millions of Americans that have reentered the job market in recent years."

"I think there is still slack in the labor market, and until we see wages growth really pick up I’m going to believe that there are still more Americans out there," Kashkari said in testimony to the Minnesota Senate Finance Committee. "I'm very focused on wages as the best indicator overall of how tight is the labor force."
So you cited the wages number and ignored the part about unemployment being at a 50 year low?

On the front page there are multiple posts about people unable to get contractors to show up because they are so busy. Go to anyone in the construction industry or trades or civil engineering across the country and ask them how easy it is find experienced help these days. For Civil Engineers this is the best economy I have witnessed, and a lot of other industries could say the same.

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Re: Dividends almost Doubled between 2013 and now

Post by OnTrack » Sun May 19, 2019 11:55 pm

3CT_Paddler wrote:
Sun May 19, 2019 7:12 pm
OnTrack wrote:
Sun May 19, 2019 3:15 pm
3CT_Paddler wrote:
Sun May 19, 2019 1:49 pm
garlandwhizzer wrote:
Wed May 15, 2019 12:56 pm
It was hoped that this would spur massive increases in employment and capital goods spending but in practice it has mostly been spent on increasing dividends and corporate stock buybacks, giving money back to investors. Repatriation of foreign profits has now slowed now to a trickle. The sugar high is over and dividends and buybacks are unlikely to continue their rapid growth going forward.
Unemployment is at a 50 year low... When the corporate tax reform was started unemployment was already fairly low... There was not a massive increase in employment to be had. My boots on the ground reaction of the firm I work for and other similar firms I see tells me that there is a bidding war for talent across many different industries.
Your observation is anecdotal. Here are BLS figures for wages (Apr 2019) https://www.bls.gov/news.release/pdf/realer.pdf
"Real average weekly earnings decreased 0.4 percent over the month due to the change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek."
"Real average hourly earnings increased 1.2 percent, seasonally adjusted, from April 2018 to April 2019. The change in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in a 0.9-percent increase in real average weekly earnings over this period."
Hardly seems like a bidding war for workers.

Here is some information on unemployment beyond the headline numbers (Apr 2019) https://theotrade.com/april-jobs-report ... -was-weak/
"even though job creation was 263,000, there were actually 103,000 less people employed this month versus last month."
This is despite the working age population increasing by 156,000. There were 5.8 million officially unemployed and 4.7 million working part time that couldn't find full time work.

Also see: https://money.usnews.com/investing/news ... -has-slack
"Federal Reserve Bank President Neel Kashkari repeated on Tuesday (March 2019) his view that the U.S. job market still has room for improvement, citing slow wage growth and the millions of Americans that have reentered the job market in recent years."

"I think there is still slack in the labor market, and until we see wages growth really pick up I’m going to believe that there are still more Americans out there," Kashkari said in testimony to the Minnesota Senate Finance Committee. "I'm very focused on wages as the best indicator overall of how tight is the labor force."
So you cited the wages number and ignored the part about unemployment being at a 50 year low?

On the front page there are multiple posts about people unable to get contractors to show up because they are so busy. Go to anyone in the construction industry or trades or civil engineering across the country and ask them how easy it is find experienced help these days. For Civil Engineers this is the best economy I have witnessed, and a lot of other industries could say the same.
Since you had already cited the statistic that the unemployment rate is at a 50 year low, I didn't see the need to repeat it. What I was trying to point out is that there is still slack in the job market overall even if there are some labor shortages in some sectors. I'm glad that some sectors are seeing healthy wage increases; hopefully other sectors will also participate. Also, hopefully some groups that still have high unemployment rates such a African Americans (6.7%), teens 16 to 19 (13%) and African American teens (24%) can see their unemployment rates lowered from the current high rates.
https://www.bls.gov/news.release/pdf/empsit.pdf

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Re: Dividends almost Doubled between 2013 and now

Post by BigMoneyNoWhammies » Tue May 21, 2019 9:44 am

Dialectical Investor wrote:
Wed May 15, 2019 3:56 pm
Phineas J. Whoopee wrote:
Wed May 15, 2019 3:52 pm
Dialectical Investor wrote:
Wed May 15, 2019 3:48 pm
BigMoneyNoWhammies wrote:
Wed May 15, 2019 3:38 pm
fennewaldaj wrote:
Wed May 15, 2019 5:32 am


Thats not necessary true though right? Some companies don't have projects to invest in that are worth it. Paying out dividends in this case is in the interest of the shareholders. That doesn't imply that management is doing anything wrong. Not every company has enough worthwhile projects to spend all their earnings on.
Devil's advocate: then how do you justify Berkshire's years long drought of major (for them) expenditures on acquisitions absent a dividend?
BRK shareholders trust BRK management's patience in finding a good deal so much they are willing to forgoe returns for many years to reap rewards later on. Perhaps recent acquisitions were due to one party or the other losing patience.
Really? Share price changes aren't part of total return?

PJW
Did not intend to convey that. I thought BigMoneyNoWhammies was referring to BRK sitting on massive cash reserves that, while surely producing higher share prices than if the cash did not exist, nevertheless were value-destroying compared to investor's long-run return expectations/requirements, if the cash is not ultimately put to more productive use.
Dialectical Investor is correct, that was what I was referring to in my devil's advocate scenario.

lostdog
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Re: Dividends almost Doubled between 2013 and now

Post by lostdog » Tue May 21, 2019 11:04 am

I don't invest looking in the rear view mirror and I know absolutely nothing about the future. I invest in Vanguard Total World Stock Index.

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Re: Dividends almost Doubled between 2013 and now

Post by Bongleur » Wed May 22, 2019 6:52 am

3CT_Paddler wrote:
Sun May 19, 2019 1:49 pm
garlandwhizzer wrote:
Wed May 15, 2019 12:56 pm
It was hoped that this would spur massive increases in employment and capital goods spending but in practice it has mostly been spent on increasing dividends and corporate stock buybacks, giving money back to investors. Repatriation of foreign profits has now slowed now to a trickle. The sugar high is over and dividends and buybacks are unlikely to continue their rapid growth going forward.
Unemployment is at a 50 year low... When the corporate tax reform was started unemployment was already fairly low... There was not a massive increase in employment to be had. My boots on the ground reaction of the firm I work for and other similar firms I see tells me that there is a bidding war for talent across many different industries.
So are you saying that dividends will NOT grow because the money will be spend on higher wages, or that dividends WILL grow because there are no more workers to be hired / worth hiring?
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Re: Dividends almost Doubled between 2013 and now

Post by RAchip » Thu May 23, 2019 10:57 am

"BRK sitting on massive cash reserves that, while surely producing higher share prices than if the cash did not exist"

What proof do you have that cash in a company "surely" results in a higher trading price? True boglhead investors buy broad index funds so they are effectively buying companies without regard to anything other than the company is in a particular index fund. Professional investors who buy based on a discounted cash flow (dcf) valuation are focused on the present value of projected future free cash flows. Current cash is not separately factored into such an approach as long as it is an operating asset (as would be the case for BRK's cash). The fact is that nobody knows for sure why buyers pay what they pay for particular stocks (why are people paying obscene indefensible prices for Beyond Meat?). The reality is that different buyers probably have a myriad of different reasons why they are willing to pay a given amount to buy particular stocks.

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Re: Dividends almost Doubled between 2013 and now

Post by Dialectical Investor » Thu May 23, 2019 11:33 am

RAchip wrote:
Thu May 23, 2019 10:57 am
"BRK sitting on massive cash reserves that, while surely producing higher share prices than if the cash did not exist"

What proof do you have that cash in a company "surely" results in a higher trading price? True boglhead investors buy broad index funds so they are effectively buying companies without regard to anything other than the company is in a particular index fund. Professional investors who buy based on a discounted cash flow (dcf) valuation are focused on the present value of projected future free cash flows. Current cash is not separately factored into such an approach as long as it is an operating asset (as would be the case for BRK's cash). The fact is that nobody knows for sure why buyers pay what they pay for particular stocks (why are people paying obscene indefensible prices for Beyond Meat?). The reality is that different buyers probably have a myriad of different reasons why they are willing to pay a given amount to buy particular stocks.
Cash reduces acquisition cost (enterprise value). This is intuitive. We are comparing a company to itself, all else equal--no additional debt. You can't buy BRK with 50 billion in cash on its balance sheet for the same price as you could buy BRK with 1 billion cash on its balance sheet, again, all else equal. Just as the market will see to it that you can't spend 10 cents right now to get back a dollar right now, the share price will change to account for this difference in cash too.

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Re: Dividends almost Doubled between 2013 and now

Post by SovereignInvestor » Thu May 23, 2019 11:53 am

There is no massive spike in CAPEX investments because there's no demand. The US economy barely grows 2%. If there was legitimate demand then we can be sure Companes would be heavily investing to meet the demand and grow profits and earnings. There's not the demand as there was in other cycles so rather that deploy capital where it's not needed corporations are returnin it to shareholders.

CAPEX bumped higher in 2018 but nothing like previous cycles, especially late 1990s (which was bubble)

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