Meta becomes a dividend payer.

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Riprap
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Meta becomes a dividend payer.

Post by Riprap »

Dividends cause heated debates with BHs. It seems either you embrace them or loathe them.

Meta has announced it will begin to pay a dividend. I see this as a welcome development since it signals that management believes it's better to return capital to it's owners rather than embark on new ventures or repurchase shares at record prices. I haven't done a deep dive into Meta's financials, but I can't help but wonder if Meta shareholders would have been better of if the investment in the "Metaverse" had been returned to shareholders in the form of dividends?

I'm sure many BHs will be upset to see dividends increase in their taxable accounts as some are very passionate about firms repurchasing shares even if at value destroying levels. I get the logic and mathematics of creating one's own dividend by selling appreciated shares when and if it happens. How many BHs who loathe dividends will accept that sometimes a cash payout is the only logical choice?

Any other BHs welcome Meta's new dividend policy?

FWIW, I don't believe dividends have some magic secret sauce or are somehow free money. They are merely a return of shareholder's capital.
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Re: Meta becomes a dividend payer.

Post by JakeyLee »

[/b]“I'm sure many BHs will be upset to see dividends increase in their taxable accounts as some are very passionate about firms repurchasing shares even if at value destroying levels. I get the logic and mathematics of creating one's own dividend by selling appreciated shares when and if it happens. How many BHs who loathe dividends will accept that sometimes a cash payout is the only logical choice?”

It doesn’t bother me one bit. Particularly when the alternative can often be pouring money down the drain via poorly executed M&A. Heck, even stock buy backs have become tainted in recent years.. you know the ones I’m talking about? It goes like this: The CEO and his/her cronies give themselves a very modest base salary. Still 7 figured, but modest nonetheless. But the bulk of their compensation is millions in company stock.. then they use company cash for buybacks; boosting their own holdings/net worth. Then, down the road, they unload large chunks of said shares back into the market. But hey, my shares went up too, right? :oops:

Sorry to sound like such a pessimist. But when all else fails, and a company is sitting on millions/billions in cash. Yeah, it doesn’t bother me one bit to see cash returned to shareholders. Taxes suck.. I get it.
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Re: Meta becomes a dividend payer.

Post by Horton »

It’s a tiny dividend. IIRC the buyback announced is roughly 25x larger.
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Re: Meta becomes a dividend payer.

Post by jebmke »

Riprap wrote: Thu Feb 08, 2024 9:31 am I can't help but wonder if Meta shareholders would have been better of if the investment in the "Metaverse" had been returned to shareholders
Would have to be weighed against the next best alternative for internal investment I suppose. Certainly the metaverse was a black hole for cash. How much did they burn in that bonfire? More or less than Elon is burning in Twitter?
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Re: Meta becomes a dividend payer.

Post by marti038 »

Doesn't matter to me a whole lot unless it's in my taxable brokerage account where I try to avoid receiving dividends (and don't own individual stocks anyway).

I think it's a bit of a sign of maturity for a company to understand that they're doing better by their shareholders to begin paying a dividend instead of continuing to invest in things that may or may not produce a significant benefit to the growth of the business.
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Re: Meta becomes a dividend payer.

Post by Hacksawdave »

So, it will generate about $56 in additional dividends in my taxable VFIAX index fund. I am good with that as I am in the 0% QD/LTCG rate and reinvest for growth anyways.
investorpeter
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Re: Meta becomes a dividend payer.

Post by investorpeter »

Riprap wrote: Thu Feb 08, 2024 9:31 am Dividends cause heated debates with BHs. It seems either you embrace them or loathe them.

Meta has announced it will begin to pay a dividend. I see this as a welcome development since it signals that management believes it's better to return capital to it's owners rather than embark on new ventures or repurchase shares at record prices. I haven't done a deep dive into Meta's financials, but I can't help but wonder if Meta shareholders would have been better of if the investment in the "Metaverse" had been returned to shareholders in the form of dividends?

I'm sure many BHs will be upset to see dividends increase in their taxable accounts as some are very passionate about firms repurchasing shares even if at value destroying levels. I get the logic and mathematics of creating one's own dividend by selling appreciated shares when and if it happens. How many BHs who loathe dividends will accept that sometimes a cash payout is the only logical choice?

Any other BHs welcome Meta's new dividend policy?

FWIW, I don't believe dividends have some magic secret sauce or are somehow free money. They are merely a return of shareholder's capital.
I think this is the point of the dividend and why the news was welcomed by the stock market. It was basically Zuckerberg's mea culpa on the Metaverse folly. I'm sure they are still pursuing the metaverse theme, and the entry of Apple into the area is actually a good thing for Meta, but the initiation of the dividend is a clear statement that the Metaverse initiative is no longer an all-or-nothing, at-all-costs, pivot of the company into an untested, non-existent market that may never materialize. It is a recognition by the CEO of the reality that META is a cash cow through its advertising platforms and is willing to share some of that cash directly with shareholders. So, I fully welcome the dividend. Though I recognize that share buybacks can have the same effect with less immediate tax inefficiencies, having cash dividends deposited in one's account is more appealing to a different subset of investor.

Now if only Alphabet would follow the same path, and stop spending so much on "other bets", and returning some cash to shareholders generated by the holy grail of cash cows - search - we could really set up a dynamic that will lead to meaningful long-term dividends. This should be the normal maturation of tech companies. Unfortunately, it may take a change in CEO for Alphabet to go down that path.
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Re: Meta becomes a dividend payer.

Post by Svensk Anga »

jebmke wrote: Thu Feb 08, 2024 10:40 am
Riprap wrote: Thu Feb 08, 2024 9:31 am I can't help but wonder if Meta shareholders would have been better of if the investment in the "Metaverse" had been returned to shareholders
Would have to be weighed against the next best alternative for internal investment I suppose. Certainly the metaverse was a black hole for cash. How much did they burn in that bonfire? More or less than Elon is burning in Twitter?
My understanding was that the cash Elon burned at Twitter was his personal wealth. I have no problem with him doing so. It is another matter entirely when publicly traded companies use corporate assets in an ill-advised fashion. (I realize that by selling Tesla shares to pay for Twitter, Elon likely suppressed Tesla's stock price. But that's just part of the risk of single stock holdings and doubly so when there is a quirky major shareholder.)
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Re: Meta becomes a dividend payer.

Post by dkturner »

The Buttonwood column in today’s issue of The Economist talks about this particular event and discusses the pros and cons of dividends vs stock buybacks.
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Re: Meta becomes a dividend payer.

Post by AlwaysLearningMore »

JakeyLee wrote: Thu Feb 08, 2024 9:45 am [/b]“I'm sure many BHs will be upset to see dividends increase in their taxable accounts as some are very passionate about firms repurchasing shares even if at value destroying levels. I get the logic and mathematics of creating one's own dividend by selling appreciated shares when and if it happens. How many BHs who loathe dividends will accept that sometimes a cash payout is the only logical choice?”

It doesn’t bother me one bit. Particularly when the alternative can often be pouring money down the drain via poorly executed M&A. Heck, even stock buy backs have become tainted in recent years.. you know the ones I’m talking about? It goes like this: The CEO and his/her cronies give themselves a very modest base salary. Still 7 figured, but modest nonetheless. But the bulk of their compensation is millions in company stock.. then they use company cash for buybacks; boosting their own holdings/net worth. Then, down the road, they unload large chunks of said shares back into the market. But hey, my shares went up too, right? :oops:

Sorry to sound like such a pessimist. But when all else fails, and a company is sitting on millions/billions in cash. Yeah, it doesn’t bother me one bit to see cash returned to shareholders. Taxes suck.. I get it.
Tsk tsk, it's not wise to cast any doubt on the Modigliani–Miller theory of dividend irrelevance. The theory's suppositions are too rooted in the real world to ignore.
Https://www.investopedia.com/terms/m/mo ... heorem.asp

Before too long numerous BH posters will swoop down and "correct" you on the irrelevance of dividends. After all, because businesses are wonderful, frugal stewards of all capital at their disposal, dividends can hinder a company’s ability to be competitive in the long term since the money would be far better off reinvested in the company to generate future earnings. Really, because these corporations are all teeming with fiscal geniuses, they ought to adopt the Berkshire Hathaway approach and eschew paying dividends in lieu of their near-universal ability to wisely deploy capital. And investors should only be able to harvest investment gains by selling stock. 😉
Last edited by AlwaysLearningMore on Thu Feb 08, 2024 8:40 pm, edited 1 time in total.
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Riprap
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Re: Meta becomes a dividend payer.

Post by Riprap »

AlwaysLearningMore wrote:Tsk tsk, it's not wise to cast any doubt on the Modigliani–Miller theory of dividend irrelevance. The theory's suppositions are too rooted in the real world to ignore.
Https://www.investopedia.com/terms/m/mo ... heorem.asp

Before too long numerous BH posters will sweep down and "correct" you on the irrelevance of dividends. After all, because businesses are wonderful, frugal stewards of all capital at their disposal, dividends can hinder a company’s ability to be competitive in the long term since the money would be far better off reinvested in the company to generate future earnings. Really, because these corporations are all teeming with fiscal geniuses, they ought to adopt the Berkshire Hathaway approach and eschew paying dividends in lieu of their near-universal ability to wisely deploy capital. And investors should only be able to harvest investment gains by selling stock. 😉
I was hoping someone would bring this up and explain to me how Meta's dividend is irrelevant. In theory, harvesting gains sounds wonderful, doesn't it?
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Re: Meta becomes a dividend payer.

Post by retired@50 »

Riprap wrote: Thu Feb 08, 2024 3:06 pm
AlwaysLearningMore wrote:Tsk tsk, it's not wise to cast any doubt on the Modigliani–Miller theory of dividend irrelevance. The theory's suppositions are too rooted in the real world to ignore.
Https://www.investopedia.com/terms/m/mo ... heorem.asp

Before too long numerous BH posters will sweep down and "correct" you on the irrelevance of dividends. After all, because businesses are wonderful, frugal stewards of all capital at their disposal, dividends can hinder a company’s ability to be competitive in the long term since the money would be far better off reinvested in the company to generate future earnings. Really, because these corporations are all teeming with fiscal geniuses, they ought to adopt the Berkshire Hathaway approach and eschew paying dividends in lieu of their near-universal ability to wisely deploy capital. And investors should only be able to harvest investment gains by selling stock. 😉
I was hoping someone would bring this up and explain to me how Meta's dividend is irrelevant. In theory, harvesting gains sounds wonderful, doesn't it?
Dividends may be irrelevant in theory, but making corporate officers cough up some of the earnings every quarter does introduce a level of discipline that some corporations might be lacking. It's not hard for me to imagine that Warren Buffett might be a more appropriate steward of earnings than Mark Zuckerberg.

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Re: Meta becomes a dividend payer.

Post by MBB_Boy »

Announced right after they did layoffs no less. Guess we know where they got the money for shareholders
Target2019
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Re: Meta becomes a dividend payer.

Post by Target2019 »

I see a nice boost to META share price for a 0.49% dividend.

I still will only hold it in passive index for now. If the dividend increase is healthy each year, it will probably work in the favor of investors.
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Re: Meta becomes a dividend payer.

Post by bob60014 »

Meh..... I guess I'm holding some of it in VTI. ;)
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Re: Meta becomes a dividend payer.

Post by TimeIsYourFriend »

Unless you believe the market to be wholly inefficient, the market does not allow you to profit from dividends. It simply a movement of money from one area (your principal) to another area (the dividend "check" if you will). If you put it back in (reinvestment), then you simply put the money back in the principal after you pay the tax man either way of course. It doesn't matter if the market is in a crash either.

Companies that pay dividends are important. Companies that are growing but not paying dividends are important. One is neither better than the other from a perspective of low cost diversified index investing. People that prefer dividends may do so because they like the idea of getting a regular check (perhaps larger than the market with a tilt). I don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market. Same as if you decided to concentrate in certain sectors for example.
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Re: Meta becomes a dividend payer.

Post by sycamore »

MBB_Boy wrote: Fri Feb 09, 2024 8:09 am Announced right after they did layoffs no less. Guess we know where they got the money for shareholders
Well it certainly couldn't have come from, uh, customers?

🙂
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Re: Meta becomes a dividend payer.

Post by AlwaysLearningMore »

TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 am Unless you believe the market to be wholly inefficient, the market does not allow you to profit from dividends. It simply a movement of money from one area (your principal) to another area (the dividend "check" if you will). If you put it back in (reinvestment), then you simply put the money back in the principal after you pay the tax man either way of course. It doesn't matter if the market is in a crash either.

Companies that pay dividends are important. Companies that are growing but not paying dividends are important. One is neither better than the other from a perspective of low cost diversified index investing. People that prefer dividends may do so because they like the idea of getting a regular check (perhaps larger than the market with a tilt). I don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market. Same as if you decided to concentrate in certain sectors for example.
Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
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TimeIsYourFriend
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Re: Meta becomes a dividend payer.

Post by TimeIsYourFriend »

AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 am Unless you believe the market to be wholly inefficient, the market does not allow you to profit from dividends. It simply a movement of money from one area (your principal) to another area (the dividend "check" if you will). If you put it back in (reinvestment), then you simply put the money back in the principal after you pay the tax man either way of course. It doesn't matter if the market is in a crash either.

Companies that pay dividends are important. Companies that are growing but not paying dividends are important. One is neither better than the other from a perspective of low cost diversified index investing. People that prefer dividends may do so because they like the idea of getting a regular check (perhaps larger than the market with a tilt). I don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market. Same as if you decided to concentrate in certain sectors for example.
Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
A company can also prematurely issue a dividend because they aren't creative enough to actually grow the company in any meaningful way. I wouldn't want to own that company even with a dividend. Regardless of how you slice it, the market will reach an equilibrium price with all public info incorporated, including bad decisions by managers.
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Riprap
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Re: Meta becomes a dividend payer.

Post by Riprap »

TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 amI don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market.
Care to elaborate with real world examples?

Economic regimes? Gus Sauter (you know who he is, right?) said, "There is no correlation between a country's gross domestic product (GDP) growth and the real returns of its stock market"
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Re: Meta becomes a dividend payer.

Post by AlwaysLearningMore »

TimeIsYourFriend wrote: Fri Feb 09, 2024 12:40 pm
AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 am Unless you believe the market to be wholly inefficient, the market does not allow you to profit from dividends. It simply a movement of money from one area (your principal) to another area (the dividend "check" if you will). If you put it back in (reinvestment), then you simply put the money back in the principal after you pay the tax man either way of course. It doesn't matter if the market is in a crash either.

Companies that pay dividends are important. Companies that are growing but not paying dividends are important. One is neither better than the other from a perspective of low cost diversified index investing. People that prefer dividends may do so because they like the idea of getting a regular check (perhaps larger than the market with a tilt). I don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market. Same as if you decided to concentrate in certain sectors for example.
Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
A company can also prematurely issue a dividend because they aren't creative enough to actually grow the company in any meaningful way. I wouldn't want to own that company even with a dividend. Regardless of how you slice it, the market will reach an equilibrium price with all public info incorporated, including bad decisions by managers.
To the extent such things that are public knowledge (Enron ?) and accurate, that's true. But doesn't fully answer the question of whether or not any dividends paid out would be better spent by [wise] management.

So, really, Modigiliani-Miller (so often quoted here as to be akin to being carved on Mount Sinai) would seem indicate that the funds used to pay the dividend would be better spent in reinvestment in the company. Are you sure Zuckerberg wouldn't be a wise steward of the money?
Last edited by AlwaysLearningMore on Fri Feb 09, 2024 3:37 pm, edited 1 time in total.
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Re: Meta becomes a dividend payer.

Post by gtrplayer »

MBB_Boy wrote: Fri Feb 09, 2024 8:09 am Announced right after they did layoffs no less. Guess we know where they got the money for shareholders
Companies should be honest with their employees. They don’t need to see Zuck crying about how they over-hired and then see him give away billions of dollars to shareholders.

People would respect CEO’s more if they said the truth - “You’re being let go because we believe you contribute so little value to the company, it would be more beneficial to the company to literally give your income away to shareholders (primarily myself, the guy building an underground lair in Hawaii) than it would be to continue to give you money. I understand this will cause havoc and chaos into your life which you may never recover from, but you really did nothing for the company.”

Of course, that’s not really true. Meta is a technology company that should be innovating. Yeah, he wasted money on the metaverse because no one would tell him that it can’t have 1990’s graphics if you want people to use it. But giving away that much money tells me they’re giving up on research. It probably benefits shareholders today but it’s a sign that Meta is just Facebook and a VR game company now and that’s it.
GP813
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Re: Meta becomes a dividend payer.

Post by GP813 »

I think it's awesome news. Yeah it's not a huge dividend yield but when you look at their buybacks, the fact they still reinvest a bunch and then also get a great ROIC, that formula is pretty hard to beat as a shareholder.
Last edited by GP813 on Fri Feb 09, 2024 6:30 pm, edited 1 time in total.
AlwaysLearningMore
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Re: Meta becomes a dividend payer.

Post by AlwaysLearningMore »

gtrplayer wrote: Fri Feb 09, 2024 2:48 pm
MBB_Boy wrote: Fri Feb 09, 2024 8:09 am Announced right after they did layoffs no less. Guess we know where they got the money for shareholders
Companies should be honest with their employees. They don’t need to see Zuck crying about how they over-hired and then see him give away billions of dollars to shareholders.

People would respect CEO’s more if they said the truth - “You’re being let go because we believe you contribute so little value to the company, it would be more beneficial to the company to literally give your income away to shareholders (primarily myself, the guy building an underground lair in Hawaii) than it would be to continue to give you money. I understand this will cause havoc and chaos into your life which you may never recover from, but you really did nothing for the company.”

Of course, that’s not really true. Meta is a technology company that should be innovating. Yeah, he wasted money on the metaverse because no one would tell him that it can’t have 1990’s graphics if you want people to use it. But giving away that much money tells me they’re giving up on research. It probably benefits shareholders today but it’s a sign that Meta is just Facebook and a VR game company now and that’s it.
Golly, there are so many BH posts about "dividend irrelevance" that I assumed it was gospel. You know, the ones that start with "Company A pays out X..." Because, after all, companies all wisely allocate funds, there is no corporate largesse, and everything goes according to Hoyle. They're practically ascetics!

Even the assumptions of Modigiliani-Miller are all rooted in the probative proof of every day life. For example, I can't see how any of the following underlying assumptions would run counter to any business principles or tax principles I've encountered over the decades, can you?

The Underlying Assumptions
The underlying intuition for the dividend irrelevance proposition is simple. Firms that pay more dividends offer less price appreciation but must provide the same total return to stockholders, given their risk characteristics and the cash flows from their investment decisions. Thus, there are no taxes, or if dividends and capital gains are taxed at the same rate, investors should be indifferent to receiving their returns in dividends or price appreciation.
For this argument to work, in addition to assuming that there is no tax advantage or disadvantage associated with dividends, we also have to assume the following:
� There are no transactions costs associated with converting price appreciation into cash, by selling stock. If this were not true, investors who need cash urgently might prefer to receive dividends.
� Firms that pay too much in dividends can issue stock, again with no flotation or transactions costs, to take on good projects. There is also an implicit assumption that this stock is fairly priced.
� The investment decisions of the firm are unaffected by its dividend decisions, and the firm�s operating cash flows are the same no matter which dividend policy is adopted.
� Managers of firms that pay too little in dividends do not waste the cash pursuing their own interests (i.e., managers with large free cash flows do not use them to take on bad projects).
Under these assumptions, neither the firms paying the dividends nor the stockholders receiving them will be adversely affected by firms paying either too little or too much in dividends.

https://pages.stern.nyu.edu/~adamodar/N ... evance.htm
Last edited by AlwaysLearningMore on Fri Feb 09, 2024 6:08 pm, edited 1 time in total.
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gtrplayer
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Re: Meta becomes a dividend payer.

Post by gtrplayer »

AlwaysLearningMore wrote: Fri Feb 09, 2024 3:47 pm
gtrplayer wrote: Fri Feb 09, 2024 2:48 pm
MBB_Boy wrote: Fri Feb 09, 2024 8:09 am Announced right after they did layoffs no less. Guess we know where they got the money for shareholders
Companies should be honest with their employees. They don’t need to see Zuck crying about how they over-hired and then see him give away billions of dollars to shareholders.

People would respect CEO’s more if they said the truth - “You’re being let go because we believe you contribute so little value to the company, it would be more beneficial to the company to literally give your income away to shareholders (primarily myself, the guy building an underground lair in Hawaii) than it would be to continue to give you money. I understand this will cause havoc and chaos into your life which you may never recover from, but you really did nothing for the company.”

Of course, that’s not really true. Meta is a technology company that should be innovating. Yeah, he wasted money on the metaverse because no one would tell him that it can’t have 1990’s graphics if you want people to use it. But giving away that much money tells me they’re giving up on research. It probably benefits shareholders today but it’s a sign that Meta is just Facebook and a VR game company now and that’s it.
Golly, there are so many BH posts about "dividend irrelevance" that I assumed it was gospel. You know, the ones that start with "accompany pays out A...." Because, after all, companies all wisely allocate funds, there is no corporate largesse, and everything goes according to Hoyle. They're practically ascetics!

Even the assumptions of Modigiliani-Miller are all rooted in the probative proof of every day life. For example, I can't see how any of the following underlying assumptions would run counter to any business principles or tax principles I've encountered over the decades, can you?

The Underlying Assumptions
The underlying intuition for the dividend irrelevance proposition is simple. Firms that pay more dividends offer less price appreciation but must provide the same total return to stockholders, given their risk characteristics and the cash flows from their investment decisions. Thus, there are no taxes, or if dividends and capital gains are taxed at the same rate, investors should be indifferent to receiving their returns in dividends or price appreciation.
For this argument to work, in addition to assuming that there is no tax advantage or disadvantage associated with dividends, we also have to assume the following:
� There are no transactions costs associated with converting price appreciation into cash, by selling stock. If this were not true, investors who need cash urgently might prefer to receive dividends.
� Firms that pay too much in dividends can issue stock, again with no flotation or transactions costs, to take on good projects. There is also an implicit assumption that this stock is fairly priced.
� The investment decisions of the firm are unaffected by its dividend decisions, and the firm�s operating cash flows are the same no matter which dividend policy is adopted.
� Managers of firms that pay too little in dividends do not waste the cash pursuing their own interests (i.e., managers with large free cash flows do not use them to take on bad projects).
Under these assumptions, neither the firms paying the dividends nor the stockholders receiving them will be adversely affected by firms paying either too little or too much in dividends.

https://pages.stern.nyu.edu/~adamodar/N ... evance.htm
I have a hard time understanding how investment options are not impacted by the dividend policy.

The argument I hear on here is that dividends are meaningless because the exchanges drop the price of the stock by the amount of the dividend so it equals out to a wash. I don’t necessarily hear an argument that dividends mean nothing to corporate governance.
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Re: Meta becomes a dividend payer.

Post by Riprap »

gtrplayer wrote: Fri Feb 09, 2024 2:48 pmto literally give your income away to shareholders
gtrplayer wrote: Fri Feb 09, 2024 2:48 pmBut giving away that much money
I'm not sure I would characterize paying a dividend as "giving away" money, after all who are the owner's of the company?
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Re: Meta becomes a dividend payer.

Post by oilrig »

Nothing to add other than I read that Mark Zuckerberg is going to make $700MM/year in Meta dividends. Crazy.
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Re: Meta becomes a dividend payer.

Post by GP813 »

oilrig wrote: Fri Feb 09, 2024 4:29 pm Nothing to add other than I read that Mark Zuckerberg is going to make $700MM/year in Meta dividends. Crazy.
Steve Ballmer gets $1,000,000,000 in annual dividends because he ended up the largest individual Microsoft investor when Gates diversified and also donated a bunch with his foundation.
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Re: Meta becomes a dividend payer.

Post by Lawrence of Suburbia »

GP813 wrote: Fri Feb 09, 2024 6:34 pm
oilrig wrote: Fri Feb 09, 2024 4:29 pm Nothing to add other than I read that Mark Zuckerberg is going to make $700MM/year in Meta dividends. Crazy.
Steve Ballmer gets $1,000,000,000 in annual dividends because he ended up the largest individual Microsoft investor when Gates diversified and also donated a bunch with his foundation.
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Re: Meta becomes a dividend payer.

Post by gtrplayer »

Riprap wrote: Fri Feb 09, 2024 4:22 pm
gtrplayer wrote: Fri Feb 09, 2024 2:48 pmto literally give your income away to shareholders
gtrplayer wrote: Fri Feb 09, 2024 2:48 pmBut giving away that much money
I'm not sure I would characterize paying a dividend as "giving away" money, after all who are the owner's of the company?
Philosophical argument, I suppose, but if an employee who does work is laid off and the income he would have received is given to shareholders who do nothing but own the stock, I suspect the employee will see it as being given away.

Yes, this is an investing forum and to that extent, this may be good for shareholders and us. But we’re also people and seeing Zuckerberg literally cry to employees about how he overstaffed and had to lay people off and then go on to enrich himself with the money he saved by laying them off… it’s hard to be ok with that.
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Re: Meta becomes a dividend payer.

Post by shess »

There are a ton of people in here to take offense to the periodic "What do you think of my dividend-stock strategy?" posts, which is where you get the epic arguments about whether dividends are really different from capital gains. But I don't think there is all that much heat on the very concept of dividends, as far as I can tell people are OK with some companies retaining earnings and other companies paying dividends, with the caveat that some companies sometimes make the wrong decisions. So I think the the Bogleheads response to this will be mostly "Meh? Whatever."
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Re: Meta becomes a dividend payer.

Post by TimeIsYourFriend »

Riprap wrote: Fri Feb 09, 2024 1:21 pm
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 amI don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market.
Care to elaborate with real world examples?

Economic regimes? Gus Sauter (you know who he is, right?) said, "There is no correlation between a country's gross domestic product (GDP) growth and the real returns of its stock market"
An economic regime can be anything. How about when banks were holding relatively longer duration bonds pre-high inflation and got head whipped when those assets plummeted? A high dividend fund is going to hold more banks than say high growth tech firms.
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Re: Meta becomes a dividend payer.

Post by TimeIsYourFriend »

AlwaysLearningMore wrote: Fri Feb 09, 2024 2:38 pm
TimeIsYourFriend wrote: Fri Feb 09, 2024 12:40 pm
AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 am Unless you believe the market to be wholly inefficient, the market does not allow you to profit from dividends. It simply a movement of money from one area (your principal) to another area (the dividend "check" if you will). If you put it back in (reinvestment), then you simply put the money back in the principal after you pay the tax man either way of course. It doesn't matter if the market is in a crash either.

Companies that pay dividends are important. Companies that are growing but not paying dividends are important. One is neither better than the other from a perspective of low cost diversified index investing. People that prefer dividends may do so because they like the idea of getting a regular check (perhaps larger than the market with a tilt). I don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market. Same as if you decided to concentrate in certain sectors for example.
Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
A company can also prematurely issue a dividend because they aren't creative enough to actually grow the company in any meaningful way. I wouldn't want to own that company even with a dividend. Regardless of how you slice it, the market will reach an equilibrium price with all public info incorporated, including bad decisions by managers.
To the extent such things that are public knowledge (Enron ?) and accurate, that's true. But doesn't fully answer the question of whether or not any dividends paid out would be better spent by [wise] management.

So, really, Modigiliani-Miller (so often quoted here as to be akin to being carved on Mount Sinai) would seem indicate that the funds used to pay the dividend would be better spent in reinvestment in the company.
Where in the paper does it state that?
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Re: Meta becomes a dividend payer.

Post by nisiprius »

It's part of the natural corporate life cycle. Companies finish their adolescent growth spurt, mature, and start paying dividends. (Or collapse).

There is an expectation of dividends someday, or the value of the stock would be the product of infinity (the infinite number of nonexistent future dividend payments) times zero (the discounted present value of a zero dividend payment). To put it another way, a stock that is truly guaranteed never to pay money to the shareholders (in some way) is a greater fool investment.
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Re: Meta becomes a dividend payer.

Post by MBB_Boy »

sycamore wrote: Fri Feb 09, 2024 11:43 am
MBB_Boy wrote: Fri Feb 09, 2024 8:09 am Announced right after they did layoffs no less. Guess we know where they got the money for shareholders
Well it certainly couldn't have come from, uh, customers?

🙂
Its all fungible obviously. I was being snarky about the timing.
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Re: Meta becomes a dividend payer.

Post by LFKB »

I wouldn’t look at META’s minuscule dividend as a sign that they don’t have other things to invest in. I think they did it because certain funds have dividend policies and it broadens the universe of investors who can own the stock.
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Re: Meta becomes a dividend payer.

Post by AlwaysLearningMore »

TimeIsYourFriend wrote: Sat Feb 10, 2024 5:25 am
AlwaysLearningMore wrote: Fri Feb 09, 2024 2:38 pm
TimeIsYourFriend wrote: Fri Feb 09, 2024 12:40 pm
AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am
TimeIsYourFriend wrote: Fri Feb 09, 2024 8:31 am Unless you believe the market to be wholly inefficient, the market does not allow you to profit from dividends. It simply a movement of money from one area (your principal) to another area (the dividend "check" if you will). If you put it back in (reinvestment), then you simply put the money back in the principal after you pay the tax man either way of course. It doesn't matter if the market is in a crash either.

Companies that pay dividends are important. Companies that are growing but not paying dividends are important. One is neither better than the other from a perspective of low cost diversified index investing. People that prefer dividends may do so because they like the idea of getting a regular check (perhaps larger than the market with a tilt). I don't think it is a good idea to concentrate your entire portfolio only in dividend payers as that introduces potential risk during certain economic regimes as the high dividend payers tend to be in certain industries by a lopsided amount compared to the market. Same as if you decided to concentrate in certain sectors for example.
Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
A company can also prematurely issue a dividend because they aren't creative enough to actually grow the company in any meaningful way. I wouldn't want to own that company even with a dividend. Regardless of how you slice it, the market will reach an equilibrium price with all public info incorporated, including bad decisions by managers.
To the extent such things that are public knowledge (Enron ?) and accurate, that's true. But doesn't fully answer the question of whether or not any dividends paid out would be better spent by [wise] management.

So, really, Modigiliani-Miller (so often quoted here as to be akin to being carved on Mount Sinai) would seem indicate that the funds used to pay the dividend would be better spent in reinvestment in the company.
Where in the paper does it state that?
Perhaps instead I should have quoted one of the underlying assumptions of the MM dividend irrelevance theory, "no bad projects."

"Managers of firms that pay too little in dividends do not waste the cash pursuing their own interests (i.e., managers with large free cash flows do not use them to take on bad projects).
Under these assumptions, neither the firms paying the dividends nor the stockholders receiving them will be adversely affected by firms paying either too little or too much in dividends." https://pages.stern.nyu.edu/~adamodar/N ... evance.htm

Without a doubt, these assumptions hold true in the real world. There are certainly no instances of managers with lots of cash on hand "taking on bad projects." Nah. Corporations with large cash flows ONLY pursue good projects.

There is essentially no fiscal waste, either. Cash in the corporate coffers go only towards good projects. (For example, as you scan today's Supper Bowl crowd, including the private boxes, you'll see NO attendees there on the company's dime; and none (none I tell you!) of the stadium seats will be occupied by corporate officers attending on the company's dime. In the highly, highly unlikely event that you see a corporate officer, you may rest assured that they either drove there on their own, or purchased a commercial airline ticket with their own funds. They would never think of chartering a jet with corporate funds.
Last edited by AlwaysLearningMore on Sat Feb 10, 2024 3:24 pm, edited 1 time in total.
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Re: Meta becomes a dividend payer.

Post by Big Dog »

gtrplayer wrote: Sat Feb 10, 2024 1:35 am
Riprap wrote: Fri Feb 09, 2024 4:22 pm
gtrplayer wrote: Fri Feb 09, 2024 2:48 pmto literally give your income away to shareholders
gtrplayer wrote: Fri Feb 09, 2024 2:48 pmBut giving away that much money
I'm not sure I would characterize paying a dividend as "giving away" money, after all who are the owner's of the company?
Philosophical argument, I suppose, but if an employee who does work is laid off and the income he would have received is given to shareholders who do nothing but own the stock, I suspect the employee will see it as being given away.

Yes, this is an investing forum and to that extent, this may be good for shareholders and us. But we’re also people and seeing Zuckerberg literally cry to employees about how he overstaffed and had to lay people off and then go on to enrich himself with the money he saved by laying them off… it’s hard to be ok with that.
yeah, the optics may be bad, but both can be true. They did over hire, which is common in SV tech, which hires ahead of the curve. Many employees came on board with literally nothing to do today, but with the belief that they would be needed in 6+ months. But the meta thingy didn't pan out, so 6 months came and went and they were still unneeded.
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Re: Meta becomes a dividend payer.

Post by Beensabu »

gtrplayer wrote: Sat Feb 10, 2024 1:35 am But we’re also people and seeing Zuckerberg literally cry to employees about how he overstaffed and had to lay people off and then go on to enrich himself with the money he saved by laying them off… it’s hard to be ok with that.
That's what companies do. Revenue goes down but ownership/stakeholders still want the same amount of money coming in to them, so they lay people off, do a hiring and raise freeze, and keep their own income level stable. Have you never seen a RIF in action before?
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Re: Meta becomes a dividend payer.

Post by rkhusky »

AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
And you think that will stop since a dividend is being paid?
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Re: Meta becomes a dividend payer.

Post by AlwaysLearningMore »

rkhusky wrote: Sat Feb 10, 2024 3:55 pm
AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
And you think that will stop since a dividend is being paid?
My point is that the oft-quoted MM dividend irrelevance theory makes some fairly unrealistic assumptions. Yet there are numerous posts that approach it like a straightforward equation "company A pays a dividend, company B does not..." and conclude, well, I'm sure you've read as many of those posts as I have.
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Re: Meta becomes a dividend payer.

Post by rkhusky »

AlwaysLearningMore wrote: Sat Feb 10, 2024 5:13 pm
rkhusky wrote: Sat Feb 10, 2024 3:55 pm
AlwaysLearningMore wrote: Fri Feb 09, 2024 11:54 am Thank goodness the companies are always such wise stewards of their funds. Never excessive use of private corporate jets. Never any ill-thought out projects, no boondoggle projects. That's why it's a real tragedy that Meta is now paying a dividend, no doubt Zuckerberg et al. could put the money allocated to dividends to far, far better use. Its my understanding that there is absolutely zero corporate largesse at Meta. 😉

ETA: you won't find any corporate jets flying in for the Super Bowl this weekend! Nor will you find any corporate officers who paid big bucks to go to the game!
And you think that will stop since a dividend is being paid?
My point is that the oft-quoted MM dividend irrelevance theory makes some fairly unrealistic assumptions. Yet there are numerous posts that approach it like a straightforward equation "company A pays a dividend, company B does not..." and conclude, well, I'm sure you've read as many of those posts as I have.
Yes, and, since I am a broad market investor, I have no idea how paying dividends will affect the returns of various companies. All I see is the effect on my taxes. Is the company borrowing money or selling assets to pay dividends? Or are the dividend payments preventing executive junkets to Jamaica, private Lear jets, foolish acquisitions and the like?
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Re: Meta becomes a dividend payer.

Post by gtrplayer »

Beensabu wrote: Sat Feb 10, 2024 3:24 pm
gtrplayer wrote: Sat Feb 10, 2024 1:35 am But we’re also people and seeing Zuckerberg literally cry to employees about how he overstaffed and had to lay people off and then go on to enrich himself with the money he saved by laying them off… it’s hard to be ok with that.
That's what companies do. Revenue goes down but ownership/stakeholders still want the same amount of money coming in to them, so they lay people off, do a hiring and raise freeze, and keep their own income level stable. Have you never seen a RIF in action before?
I currently work for a company that has been doing mass layoffs and was on a lengthy hiring freeze, so yes, I see it. The company says they need to be more efficient and then increases CEO pay and increases dividend payouts and stock buybacks.

If markets are efficient, companies never have to pay a dividend. They could hold the excess money and shareholders could sell stock if they need income. The funds in their bank account are accounted for in the stock price - this is proven by the stock price dropping when the dividend is paid. Dividends force the company to give away the money and force shareholders to pay taxes on it. Companies no longer have the money if an investment opportunity comes up, and shareholders have less money because they were taxed on it.
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Re: Meta becomes a dividend payer.

Post by Riprap »

nisiprius wrote: Sat Feb 10, 2024 6:27 amTo put it another way, a stock that is truly guaranteed never to pay money to the shareholders (in some way) is a greater fool investment.
vs
gtrplayer wrote: Sat Feb 10, 2024 10:26 pmIf markets are efficient, companies never have to pay a dividend. They could hold the excess money and shareholders could sell stock if they need income. The funds in their bank account are accounted for in the stock price - this is proven by the stock price dropping when the dividend is paid. Dividends force the company to give away the money and force shareholders to pay taxes on it. Companies no longer have the money if an investment opportunity comes up, and shareholders have less money because they were taxed on it.
Sums up the debate on BHs nicely.
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