Does anyone have the Barrons article from 11/3/07 "Speaking of Dividends " that they could share. I wanted to save a file of that article. Highlight is a discussion on buybacks vs dividends and who they really serve. thanks in advance

Found it online here

Thanks Dave, that was an earlier article I believe. I saw the title which was peer power. next to the one you forwarded. One line in the middle of the article you forwarded was that buybacks "benefit the issuer". CEO's can prop up the price of an underperforming stock with buybacks  which also helps when their options come due. S&P has done a paper on whether compnaies which do buybacks outperform the market. The author was on CNBC today and his data showed no great benefit to the stocks performance comapred to the S&P.

Here's the link  http://www.cnbc.com/id/21652874/ 

This a great discussion - this question comes up in our club alot and there is debate over whether the buybacks are good for us, the investor, or good for the company as a whole, or just fluff to make the numbers look good.  It would be nice to have some clarification, with proof to back it up.  Thanks...

Laura

This a great discussion - It would be nice to have some clarification, with proof to back it up.  Thanks...

Laura

Hi Laura, the only “proof” I have seen is the article by the S&P author today on CNBC. (Linked in a message below). In my opinion buybacks do a couple of things; one is to prop up the price in the short term. My question is, why not concern themselves with increasing profits instead of this short term approach. Most buybacks prop up the price short term and benefit those few who have stock options. If the stock is at such an “under valued price” why are they not buying the stock with their own money? Secondly the buying back reduces the number of shares outstanding, thus increasing the EPS. Again, grow the profits and they won't have to bother with how many shares to repurchase. To me this is wasted energy and not the company’s core business. One argument for not wanting to pay the dividends is that they give the company less flexibility if things tighten later on down the economic cycle. Hockey Puck!!! If the dividend policy stated a certain percent payout goal the company could pay out profits and this would take out any surprises in future releases. One would know that they are always going to get 33% payout ratio or whatever number the company sets. Dividends benefit all shareowners while buybacks benefit a few. Some CEO’s even claim to be concerned with putting a tax burden on the shareowners, more hockey puck! I’ll take responsibility for my tax burden just as I do with the other monies I collect during the year. So as you can see I am a dividend believer!

Here's the article I was first mentioning.

Here's the Lord Abbett article mentioned in the Barrons article. Shows chart of dividend payers vs non payers for the past 35 years.

https://www.lordabbett.com/articles/return_of_dividend.pdf 

Danny:

Thanks for your article links.  I'll read thru them and see if they make sense to me.  I agree with you about the individual tax implications, that's my problem, not theirs to worry about.  Plus, we're getting taxed at the lower 15% rate right now, if held for longer than a year, so I'm jiggy with that.  Plus, if it's in your IRA, taxes are deferred until later on when hopefully you are in a lower bracket (course all that could change, and probably will by the time I'm allowed to start withdrawing (another 20 yrs!!).

Laura

Laura, so you are not blindsided remember that you will pay income tax rates on deferred acounts not capital gains when you withdraw these accounts. This goes for all gains, price and dividend growth.

Which means I should be socking as much as I can into my ROTH account which grows tax-free, right?  What other tax-friendly investments are there, when one has maxed out their 401K's and have additional monies to invest? 

Laura

Which means I should be socking as much as I can into my ROTH account which grows tax-free, right? 

Laura

That is what I do with my Roth. Last year the max was $4000, or $5000 if you are over 50. Other tax free investments that I know of are municipal bonds. I have never dealt with those.

Danny,

Thanks for the Lord Abbett article.  It helped reinforce my view of dividends.  I would like to see a more indepth discussion of buybacks and their effect on dividends.  If management if being rewarded with stocks, is it better to give dividends vs buybacks?  If the Board authorizes buybacks, and management purchases stock when they are on sale or of great value, what then?

I own a electric company who had several bad quarters but refused to stop the dividend.  Instead of becoming a Albatross, it became a target and inspiration to make the dividend. 

What is your view of ROE and its relation to dividend payout?

Bob

----- Original Message -----

From: classroom@stockcentral.com

To: ralphseger@comcast.net

Sent: Sunday, November 11, 2007 11:32 AM

Subject: [The Classroom]: RE: Barrons - "Speaking of Dividends" (efb1c192-fce7-4d4b-954d-89d576c917ba)

 

From the The Classroom forum at StockCentral.com, Bob Blanchette writes:

Danny,

 

Thanks for the Lord Abbett article.  It helped reinforce my view of dividends.  I would like to see a more indepth discussion of buybacks and their effect on dividends.  If management if being rewarded with stocks, is it better to give dividends vs buybacks?  If the Board authorizes buybacks, and management purchases stock when they are on sale or of great value, what then?

I own a electric company who had several bad quarters but refused to stop the dividend.  Instead of becoming a Albatross, it became a target and inspiration to make the dividend. 

 

What is your view of ROE and its relation to dividend payout?

 

Bob

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Posted by: Bob Blanchette

Bob you hit it right, the fact that mgt is being rewarded with options is why they favor buybacks. They are using shareowners cash to buy stocks to cover their options. As I said in an earlier post if the mgt really believed in a company why aren't they putting their own money into it? The more shares thye own the more dividends they could collect, possibly forever. When companies announce a buyback it is only an announcement. They are authorized, not required, to initiate the purchases. I believe the only way a buyback would actually help the shareowner is if they retired the shares purchased not just put them in the treasury for later reissue.

By artifically propping up the price the mgt's track record will look better than it actually is. This seems to be a policy of feeding off of one self instead of truly increasing profits. A good dividend policy should be one that grows dividends at or near the same rate of earnings growth. If the payout ratio is maintained it should not affect the ROE to any significant degree, IMO.

Congrats to you for taking the challenge and maintaining a dividend to shareowners. It can be done but the appetite for many is not there as buybacks benefit the policy makers.

12/8/ issue of Barrons has an article titled "Buybacks that Bite back" The story carries stats that show again that buybacks are not helpful to the the shareholder. Most buy backs are covering options grants to upper management. some are taking on debt to the detriment of their financial ratings just to fund these buybacks. The last paragraph states, "Over the long haul, the best way for Corporate America to make shareholders happy might be to spend less effort on buying shares and more on finding new opputunities to expand its businesses".

Here is a yahoo article on the benefits of dividend investing.

Here's a review of dividend payouts in 2007 and an outlook. I like what they are saying.

Hi Robert, yes I have heard and read that concept in different media outlets. However, I am of the camp that I and many are able to manage our tax situations. I would rather have them give me my cash and then I can decide if putting that money back into the same stock is a worth investment. If I know what my dividend income will be in any given year I have time to negate, or not, my tax liability. Probably not a right or wrong on this but it comes down to preferences.



----- Original Message -----

From: classroom@stockcentral.com

To: ralphseger@comcast.net

Sent: Monday, January 14, 2008 10:03 PM

Subject: [StockCentral.com] Barrons - "Speaking of Dividends" (efb1c192-fce7-4d4b-954d-89d576c917ba)

 

A message was posted to a thread you are tracking.

robert Posted:01/15/2008 3:03 AM

Subject: [StockCentral.com] Barrons - "Speaking of Dividends" I enjoyed the article Danny.  The thing it omits to point out . . . and an argument for stock buybacks versus dividends . . . is that a dividend triggers a tax event whether or not the shareholder wants it.  A stock buyback allows the shareholder to choose when to trigger a tax event (by choosing to hold or sell).  Therefore, I think I would prefer a buyback . . . does this argument make sense?

---

So true a point so overlooked by company boards. Instead of increasing overall profits they want the EPS to "look" like it is increasing...until all the options are exercised.

Isn't the market tracking PE's and Dividend Yields.  EPS seems to be the critical element for the market.  If management can get the market to focus on EPS, then Cash Flow, Price to Book, EBITDA, Price to Sales, ROE,  ROIC  and other metrics can slide thru unnoticed.

Bob

----- Original Message -----

Fro, 2008 11:13 AM

Subject: [The Classroom]: RE: Barrons - "Speaking of Dividends" (efb1c192-fce7-4d4b-954d-89d576c917ba)

From the The Classroom forum at StockCentral.com, Bob Blanchette writes:

Isn't the market tracking PE's and Dividend Yields.  EPS seems to be the critical element for the market.  If management can get the market to focus on EPS, then Cash Flow, Price to Book, EBITDA, Price to Sales, ROE,  ROIC  and other metrics can slide thru unnoticed.

 

Bob

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Posted by: Bob Blanchette

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January 17, 2008

Re REITs

Please be aware that REITs are valued on a price/funds from operations basis not a P/E basis.  Funds from operations include net income plus depreciation, but not profits from sale of real estate.\

To be free from income taxes a REIT must pay out about 90% of it pre tax income in dividends.  REITs which stick close to this rule are able to use the remainder of funds from operations for improvements and acquisitions.  Obviously REITs which pay out only the minimum required by Federal Income Tax Law are in a position to grow organically. When searching for a REIT keep the above in mind

Ralph Seger