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Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by whatever1 on Saturday August 10, 2019 @06:21PM (#20664830)
Honest question, why do (some) public companies distribute dividends? Why instead of increasing the wages or investing in the future of the company you just burn cash in a way that may or may not help the stock price of the company (which is just pure massive speculation of the market players to begin with)?
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by harryh on Saturday August 10, 2019 @06:43PM (#20664952)
Honest answer:

Your premise that the stock price is "just pure massive speculation of the market players to begin with." is wrong.

Maybe in the short term, but in the long run the stock price of companies reflects the value of what they are able to build. When management feels that it has cash that it is unable to invest productively in building company value it returns that cash to shareholders in the form of dividends or buybacks.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by whatever1 on Saturday August 10, 2019 @06:48PM (#20664980)
If it was not speculation the stock market prices would only change the day of the earnings call. Anything else is speculative, since we don't (at least should not) have access to the real performance numbers the rest of the year.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by TheodolphusRose on Saturday August 10, 2019 @07:08PM (#20665083)
That’s a super simplified model of the world. Investors put a lot of work into finding out information between earnings calls, including talking to suppliers and customers, acquiring data on sales (obtained via retailers, credit card companies, satellite data, etc), and observing external events that affect the market including regulatory changes and the earnings of peer companies. All of these bits of information can provide insight on the hidden information.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by harryh on Saturday August 10, 2019 @07:35PM (#20665211)
There is, of course, speculation in the market. My objection was to use of the phrase "pure speculation."

As Benjamin Graham said, the stock market is a voting machine in the short term but a weighing machine in the long term.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by id on Saturday August 10, 2019 @07:07PM (#20665080)
Not just earning calls provide new information. The market also reacts to economic data, key people leaving a company, regulatory changes, natural disasters and so on. If it changes the company's outlook, it will also move the stock price.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by blihp on Saturday August 10, 2019 @07:03PM (#20665060)
If management believes doing either one of those will result in a financial benefit greater than paying the dividend/doing buybacks, they will do so.

The idea is that if a company doesn't have compelling business plans requiring further investment that will likely generate a significantly better ROI than the cash can generate, then the excess cash should be returned to the owners of the company. (i.e. the shareholders) A secondary benefit is that dividends make stocks more expensive to short (i.e. speculators betting the share price will go down... and often helping it do so) and can often increase the price paid in hostile takeovers (i.e. the acquirer will often have to pay a higher premium to get the shareholders to accept than if the company just kept the money in cash equivalent investments)

What has changed in recent decades is that dividends are generally not considered the most tax-efficient way to get the money to the shareholders so stock buybacks (which presumably increase the share price and will be taxed as capital gains when shareholders sell as opposed to income when received as dividends) are often preferred.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by michaelt on Saturday August 10, 2019 @07:13PM (#20665105)
If you're a mature company making something like ketchup or tyres or whatever, there's limited scope for growth. There'll be good years and bad years, but nobody claims ketchup revenue will treble in the next 15 years, in the way Netflix revenue might do.

For a company whose sales have reached cruising altitude, a dividend is the equivalent of the interest you'd be paid, had you put the same money into a bank account.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by greenleafjacob on Saturday August 10, 2019 @06:52PM (#20664996)
Suppose you follow your argument to the conclusion, and no companies issue dividends. What is the point of owning a share of a company then?
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by whatever1 on Saturday August 10, 2019 @06:56PM (#20665018)
People happily own Amazon/FB/Alphabet stock with no dividend payments.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by mrep on Saturday August 10, 2019 @07:47PM (#20665252)
Alphabet just announced a 25 billion dollar stock buyback.

Amazon and Facebook are growth stocks so investors don't mind them holding some cash to make investments, fund acquisitions and what not (which is what everyone here seems to want). However, they'll both probably hit a 100 billion dollars in cash in the next 5 years and I would expect dividends/buybacks to follow soon after as that is more cash than anyone reasonably needs.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by greenleafjacob on Sunday August 11, 2019 @04:03AM (#20666987)
They don't (currently) issue dividends because the expectation is they will buy back their stock or will issue dividends in the future.

If a company never issued dividends and never bought back their own stock, then there would be no reason for investors to buy stocks in the first place. Most investors don't invest out of the goodness of their hearts, they invest to get a return on capital.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by K2L8M11N2 on Sunday August 11, 2019 @05:19AM (#20667242)
Berkshire Hathaway doesn’t pay dividends and most probably never will.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by mrep on Sunday August 11, 2019 @12:06PM (#20668736)
But they have bought their own stock back and they are even considering a whopping $100 billion dollar buyback [0].

[0]: https://qz.com/1611997/warren-buffett-hints-on-timing-of-big...

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by gridlockd on Sunday August 11, 2019 @10:47AM (#20668396)
Yes, but Berkshire is a holding company, made up of a lot of companies that do pay dividends, are expected to eventually pay dividends, issue buybacks, or are themselves holding companies.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by dodobirdlord on Saturday August 10, 2019 @08:06PM (#20665336)
Do you think that all of those people are insane? Surely you must realize that shares of non-dividend paying companies are valuable because they are expected to eventually begin paying dividends.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by gridlockd on Sunday August 11, 2019 @10:50AM (#20668413)
Owning its assets, as in the case of a holding company.
Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by betterunix2 on Saturday August 10, 2019 @10:21PM (#20665817)
Shareholders want a return on their investment in the company, and eventually shareholder pressure forces a company's directors to pay a dividend or initiate a buyback of some sort. For small companies in growing markets investors might be willing to wait for either growth or an acquisition; a larger company in a mature market needs to compensate investors more immediately. Corporations ultimately serve the interests of their shareholders, so giving the money to the employees in the form of higher wages should in principle happen only when doing so advances the interests of the shareholders (e.g. to keep skilled workers in a tight labor market).

For what it's worth, companies with a long history (25+ years) of growing dividend payments tend to outperform the broader market over long periods of time.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by whatever1 on Sunday August 11, 2019 @12:09AM (#20666177)
What is the marginal contribution of the shareholders to the bottom line of a 25+ yo company? What is the corresponding contribution of it's workforce? Why the shareholders should have priority?

Let's say I buy WalMart stock tomorrow, why should I be prioritized in the distribution of profits next year? I never gave a dime to WalMart, at best I helped the stock price a little. The folks at the warehouse though, have a measurable contribution to the performance of the company. Or in other words, why WalMart has to pay to the eternity a "loan" that it got at the IPO, and not use the money for improving the company itself with the potential to further increase its value?

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by betterunix2 on Sunday August 11, 2019 @08:17PM (#20671418)
Actually the stockholders are last in line -- "profit" is what is left over after all the other expenses are paid. Employees are entitled to their wages as long as they are employed; stockholders are not actually entitled to anything and may never see any return on their investment. Before stockholders can be paid, a company must pay its employees, its suppliers, its taxes, its bondholders, etc. That is the risk a stockholder accepts.

It is wrong to think of a stockholder as having given a "loan," because that is not what stock represents. Stock represents an ownership stake in a business, and ownership is perpetual (a perpetual loan makes no sense -- it is not a "loan" if it can never be repaid).

Stock ownership is transferable for a publicly traded company, which is why someone who did not buy their stake directly from the company can be entitled to all the benefits of someone who did. This is a good thing because it reduces the risk of investing -- if you invest in a company, and later on find yourself short on cash, you can sell your shares (though it may be for less than you paid, but that's just how it goes when you own something). If the buyer of your shares were not entitled to the same benefits as you, why would they buy the shares in the first place?

That is also why a company ultimately serves the interest of its shareholders -- they are the owners. That is how a capitalist system works, so if you think this is problematic then you really have a problem with capitalism. What sort of system would you like to see? Communist systems have not been nearly as successful historically (which is why there are so few remaining) and socialism has only worked well as means of supporting capitalism (e.g. providing people with food, healthcare, education, transportation, and whatnot so that they can participate in a capitalist system in a meaningful way).

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by MarcScott on Saturday August 10, 2019 @06:40PM (#20664934)
I'm not even close to being an amateur economist, but:

1. Paying dividends makes you an attractive investment to people looking for long-term investments, such as pension funds.

2. This increases stock price, and when a corporation holds much of the stock, this increases the corporations holdings.

3. Those individuals working within the corporate structure that hold stock, increase their net worth.

4. The corporation and influential employees gain, and so keep paying out high dividends.

Please correct me if I'm wrong, as I'm just guessing.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by dodobirdlord on Saturday August 10, 2019 @08:21PM (#20665389)
Basically completely wrong, so here's some correction.

> 1. Paying dividends makes you an attractive investment to people looking for long-term investments, such as pension funds.

Close, but paying dividends makes you an attractive investment to anyone. Stock in a company is valuable because the company pays dividends, is expected to eventually pay dividends, or is expected to be bought out by another company.

> 2. This increases stock price, and when a corporation holds much of the stock, this increases the corporations holdings.

This mostly should not change the stock price. If the market believes that the company is foolish to pay the dividend because it is able to get a higher rate of return than its shareholders will be able to get with the money, then announcing a dividend would reduce the share price. If the market agrees with the company's management that the company does not have better investment opportunities than the shareholders, then the share price will go up if the dividend was unexpected (i.e. the market thought that the management was stupid, but it turns out they are not), and otherwise will not change.

> 3. Those individuals working within the corporate structure that hold stock, increase their net worth.

As previous, not really. Under normal circumstances paying a dividend will have, if anything, a negative effect on the share price. (The company has less money now, why would it be more valuable?)

> 4. The corporation and influential employees gain, and so keep paying out high dividends.

Sorta correct! Once you begin paying a dividend, cutting the dividend should indicate one of two things. Possibility one, you have found new investment opportunities to better deploy the money than the shareholders could. Great news! Possibility two, the company is struggling financially and no longer accrues profit that it can use to pay the dividend. Bad news! If the market doesn't believe that the company has good investment opportunities, then cutting a dividend should be taken as a sign that the company is struggling, and the stock price would fall (If the company can't afford to pay dividends, why own the stock?). So if influential employees hold a lot of stock, they will be inclined to continue paying the dividend.

Re:Companies Use Borrowed Billions to Buy Back Stock, Not to... by MarcScott on Sunday August 11, 2019 @05:48AM (#20667329)
Thank you for taking the time to reply, and correcting my misconceptions.