January 09, 2009
– Comments (4)
Dividends aren't safe and buybacks were a disaster.
I posted my feeling and what I thought would happen and it seems it is becoming more mainstream...
Naked capitalism on a New York Times article.
Depends on the company no? While I am more of a dividend fan than a stock buyback guy, it really depends on the company. There are MANY companies that have been increasing their divdidends (T, MSFT, PVR, EVEP. MMLP. DMLP just to name a few off the top of my scotch imbued head). Just have to pick wisely in the end.
I agree with awallejr. My head is scotch imbued.
No, it's my lunch hour, the imbued part comes later...
Anyway, I didn't have anything to do with financial stocks over the past 3 years. Anyone who thought there was a housing bubble knew the dividends were unsustainable and certainly not worth the underlying risk in the companies.
Now, however, I look and see companies like NOK--both dividends and buybacks--yielding about 4.4% from a payout ratio around 25%, with $12 billion in cash, almost no debt. Furthermore, shares outstanding have decreased by almost 20% over the past 8 years. Their business can stagnate for the next 5 years and they won't have to cut the dividend.
Alternatively, look at PFE: dividend yield of 7.3% from a payout ratio around 60%. $26 billion cash, $7 billion debt. They have been paying dividends for 60 years or so.
To me, high yielding companies are the place to be. These are bargains like we have never seen before, and when my cash account is only paying 1.8% or whatever pittance cash pays these days, I'll take my chances with NOK and PFE instead.
disc: I own NOK and PFE and I'll likely buy more.
From the fourth quarter of 2004 through the third quarter of 2008, the companies in the S.& P. 500 — generally the largest companies in the country — reported net earnings of $2.4 trillion. They paid $900 billion in dividends, but they also repurchased $1.7 trillion in shares.As a group, shareholders were paid about $200 billion more than their companies earned over that four-year period.
Wow. This occured during an unprecedented era of record nominal profits and the aggregate net return to investors is still negative.
This comment caught my interest:
"I've mentioned a few times that I feel something is fundamentally deeply wrong, and cited some share repurchases instead of investment in production, R&D, and their own businesses. Now I have a much better data point. They invested not only all of their profits, but then some.Either our corporations are systematically moronic and the incentive system is totally FUBAR, which I admit has a strong case, or there are structurally very few projects and investments in the U.S. economy that have a sufficiently positive return(a very low number, at this point) that they'll be undertaken. That structural pressure means deflationary forces will be stronger and investment will be low for a long time to come."
DOUBLE YOUR DIVIDENDS Motley Fool article of 6-8-09 is way off base. I calculated the amount of dividends paid by PEP vs T for period of Sep 1998 - April 2009 and found that T paid 38% MORE dividends. The stock price for the two companies were basically the same in Sep 1998, so the calculation was easy.
The Motley Fool article leads you believe that PEP would be a better pay-off, but not by my calculations!