Vlad, Might the company be returning money to shareholders simply because it has, for the time being, run out of Positive NPV Real Projects to pursue? As m22au stated, they (the company) can earn a superior return on projects up to a certain point, but there is only so much they can do that well, and that area is up to and including that given point. Therefore, they refund the excess to investors, rather than take on Zero or Negative NPV Real Projects, and also choose not to invest the corporation's earnings in fairly valued Financial Assets. Also, we can theoretically, undue any financial action undertaken by the management of a company, correct?
Without giving this much thought, as I'm kind of in a hurry, I guess you are right. But if they indeed, temporarily or not, ran out of positive NPV opportunities, I'd rather move all my money to those who have trouble finding enough cash to fully capitalize on the opportunities they have and are developing etc. Also, the fact that the company can provide a good return only the some amount but not more does not bode well for its future. Companies have to continually develop new opportunities to be able to stay afloat and expect the ones they have now to erode. Thus, to me it's a sign to get out. It may be a heuristic/stereotype but I'd argue it's a good one given the statements above.
Some companies are, by law, forced to issue a large part (95% ?)of their earnings as a "dividend," i.e., REITS. nitro
A statistic that is often thrown out is that 1/2 of the market's total return has come from the payment of dividends. Of course the 90s were an anomaly where cap gains ruled the roost. I suspect over the next few years stocks that pay dividends will outperform non-dividend payers. You can certainly argue that the money could be better used for growth of the company. However, on the other side of that most managements expand too much and it ends up backfiring. (Now if you are adept at trading, you can ride the bus and hop off at the last stop) I think that longer term investors will not want to see management cashing in huge option packages and will demand that cash be paid back to shareholders. If there is no dividend as is the case with a lot of beat up companies then I think investors will lean toward buying the debt.
question from an idiot: if the company pays the dividend, that money is now in the hands of the investor. if the investor uses that money to "turn around and with those dividends buy the company's shares on the market", another investor gets the proceeds of that transaction, not the company itself, right? so the company then has less cash, regardless of what the investor does with the dividend. so how is this the same thing? what am i getting wrong?
I was reminded and wondering with all the dividend talk... Anyone know how the Dogs of the Dow are doing for the past few years...
i think that's a good point. i was just recently looking through some of this stuff myself. from my admittedly limited understanding, the returns on that long-term-buy-hold crap just looks so pathetically weak unless you factor in dividend payments (and reinvestment). i think this is the area where EMH really comes to the fore -- seems to me that anyone following the 'investment' advice in the popular books is fooling himself if he thinks that he's gonna start uncovering next-big-thing type growers for the next 15-20 years with his pathetic homemade fundamental anlayses. i say dividends count, and count big.
absolutely right. The best "investment" i have made, as in a long term hold, was when i bought a few shares of a utility as a kid and put it in a dividend re-investment plan. I know own 4 times the shares i once owned and the shares are worth about double what i paid for them. Sure i could have bought an internet stock instead I guess. I think we are in a significant down period economically, this is not a normal recession, and not a normal bear market. People are tired of pie in the sky, and they want a cash return. Dividends will become popular again no matter what the scum on CNBC say. By the way, some of the best advice I can give a newbie is to stop watching CNBC.