Comments on: No dividend, no worries http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Anonymous http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33827 Wed, 07 Dec 2011 22:57:33 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33827 Another point is that the book value of Apple is increasing as they hold on to retained earnings. Assets, after all, do have value. Especially cash. If they are able to continue growing revenues without reinvestment of capital, why not keep the asset as cash? In the future if Apple finds a project they estimate will warrant an investment of capital for lucrative future returns in a more friendly business climate, they will have the capital on hand to do so. Why invest the money now in an unfriendly business climate with a low expected return? Obviously, Apple sees what a lot of other businesses see now, regardless of political rhetoric. There is not a lot of confidence that in the future, there will be a market for the public to adopt new innovations in a stagnant economy. If the risks of the cash investment losing value didn’t outweigh the probable expected return on the reinvestment, they would be reinvesting. If all it took to raise a stock price was to pay dividends, every company would be paying out everything they could in dividends. Plus the tax implications already pointed out.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33712 Sat, 03 Dec 2011 01:19:53 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33712 “they then lacked enough money to sort themselves out”

First I’ve ever heard THAT excuse applied to Microsoft. Do you realize they are sitting on $50B of cash, growing by $10B+ annually?!?

Microsoft’s problem is a lack of innovation, not a lack of resources. They are still trying to reinvent the iPhone and iPad.

Note also that Microsoft’s low dividend payment limits their ability to leverage a higher P/E. They presently offer a 3.2% dividend, which is okay but nothing special for a slow-growing behemoth. Doesn’t matter that their P/E is just 8.5 when they refuse to share most of that cash with their stockholders.

If they pumped a 45% payout rate — safe given the stability of their earnings and financial strength — you would see a lot of ears perking up at the 6%+ yield and I bet the share price would nearly double. The dividend yield mostly offers a “floor” to the stock, so a low dividend payout provides a low floor.

If Apple were to initiate a $5/year dividend, nobody would care. If they were to pay a $20/year dividend, you would see the stock jump.

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By: FifthDecade http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33711 Fri, 02 Dec 2011 23:48:05 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33711 $82 billion may not seem like a big number to Apple, a quick mental calculation says it is equivalent to just 9 months revenue, and that’s before taxes and reservations. In the tech world, you never know how successful your next product will be and may need a cushion to weather a hole in sales. You might have forgotten, but Apple never has, how close they came to going bust.

As has already been said, the money is used to protect the supply chain (eg a few years ago when they bought 67% of the world’s NAND chip memory – was it worth $5 billion?) to invest in collaborative and innovative hardware production methods with suppliers (eg the recent $1 billion deal with Sharp for displays), to buy smaller but technology brilliant companies for their technology (that’s how Siri got to the iPhone) and to be able to survive in hard times without having to cut training budgets as HP have done and to invest in products that they can refine in the market place even if they start out being unpopular (eg Apple TV).

As for the share price, I suspect the old argument used against Microsoft is being applied here, that increasing dividends (or even paying one) could increase demand for the company’s shares from pension funds and other large investors and thus increase the share price.

Microsoft did indeed start paying out dividends, and when Vista flopped their expected new income flows didn’t materialise, and as a two product company with half of their business off kilter they then lacked enough money to sort themselves out so we’ve had quite a few years of pretty flat growth, compared to Apple’s meteoric rise.

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By: AASH http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33682 Fri, 02 Dec 2011 06:16:50 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33682 “It is perfectly possible for a company to acquire another company simply because they see it as fundamentally cheap.”

A company should never acquire a company just because it is Cheap, they should only do so if the acquisition adds value to their core business.

If they have extra money they should give it back to their shareholders who can invest in all the cheap companies they want.

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By: ylime1 http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33645 Thu, 01 Dec 2011 01:53:34 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33645 I believe that the author has confused two fundamental items: price to earnings ratio and price to book ratio. Piling up stacks of cash improves the P/B, not the P/E. A good P/E may contribute to a healthy P/B but they are independent even if they often correlate nicely.

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By: Marphatexas http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33640 Thu, 01 Dec 2011 00:50:32 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33640 Alas, educating Felix seems to be the point of this blog. And we are all willing to do it. Why in the world does a financial publisher like Reuters assign an art and philosophy major to cover business issues. As sign of the times, I suppose.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33626 Wed, 30 Nov 2011 20:56:05 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33626 Similar logic, KenG. Amazon essentially needs a decade of 30% growth to justify that price. Not impossible, if they can become a player in some new games, but that is a VERY difficult call to make with any confidence.

I long ago reconciled myself to the fact that I won’t own every winner in the market. For that matter, I will rarely own ANY of the big winners. And that is perfectly fine with me as long as I can continue to successfully avoid the big losers. The natural trend of the stock market (even in these weak economic times) is strongly positive as long as you can stay away from those that go bust.

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By: KenG_CA http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33624 Wed, 30 Nov 2011 20:17:54 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33624 If you thought Wal-Mart at a P/E of 50 was nuts, you must really love Amazon at 100. Great company, lots of room to grow, but 100? I used to own it, but thought it couldn’t sustain a P/E of 70, so I sold it. I know at some point I will be right, but that is little consolation for selling it before it triples.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33623 Wed, 30 Nov 2011 19:45:48 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33623 Depends on the situation, KenG… Took ten years for Walmart’s price and fundamentals to converge. Finally, in the last few months, it seems to be reversing a little. Has less to do with its operating success than with the ridiculous valuation it was trading at a decade ago.

In contrast, I expect the market to separate the winners from the losers in pharma within five years. (Right now the whole sector is trading at a discount.)

Remember that a better company should ALWAYS trade at a higher valuation than one in a similar industry that is less well run. Plenty of examples of that, pricing differences that persist indefinitely (with good reason).

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By: zdneal_2 http://blogs.reuters.com/felix-salmon/2011/11/30/no-dividend-no-worries/comment-page-1/#comment-33621 Wed, 30 Nov 2011 19:16:05 +0000 http://blogs.reuters.com/felix-salmon/?p=11307#comment-33621 “How long is the long run?”

When we’re all dead.

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