[Saaster]

It's a good common sense start. Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments. Risk needs to be inversely correlated with reward for the markets to function. Investors in riskier companies deserve to get wiped out, not propped up.

Companies registered in tax-havens should have no business applying for EU or US aid. I would say, simply barring them doesn't go far enough. If one did apply while being simultaneously registered in the EU/US and any tax haven, that is fraud and should result in jail time.

[AnthonyMouse]

The notion that we should be encouraging corporations to hoard money is crazy. We have enough problems with them doing that as it is, because executives already have a perverse incentive to retain earnings for pet projects and wasteful empire building, and there are a bunch of dumb tax rules that already allow taxes to be avoided as long as the money isn't repatriated and paid out to shareholders, which makes the shareholders prefer to collect interest on the before-tax amount in an offshore account inside the corporation rather than the after-tax amount in their own domestic account.

Corporations don't need to hoard money because viable businesses can always raise more. The exception is unforeseen systemic problems like this, but even they aren't really exceptions, the issue then is that everybody needs to borrow money at once and there aren't enough creditors which requires a policy change to make a sufficient amount of credit available.

[tick_tock_tick]

It was such a problem in the past we added laws around it https://www.investopedia.com/terms/a/accumulatedearningstax....

[toast0]

> there are a bunch of dumb tax rules that already allow taxes to be avoided as long as the money isn't repatriated

I think that was just in the US; but the Trump tax changes got rid of global taxes on US companies, payable on repatriation and replaced it with essentially a minimum tax on global income, payable immediately, but credited by foreign taxes paid; plus a different rate on US income.

IIRC, the global minimum rate is about 10%, and the US rate is about 20%, and there's probably some progressivity, so those are the top marginal rates, but this isn't tax advice.

[MiroF]

> Companies that pay dividends or make share buy-backs are more vulnerable in a crisis

All public companies are anticipated to pay dividends or buy-back at some point in time, it's what underlies stock pricing.

[Saaster]

And they can definitely still do that. AFTER they've paid back the state aid they received.

[MiroF]

I don't think we disagree? Just disagreeing that there are two types of public companies, "those that do or will pay dividends" and "those that don't" since the latter group doesn't actually exist.

[BeetleB]

> All public companies are anticipated to pay dividends or buy-back at some point in time, it's what underlies stock pricing.

I don't know the specifics of the Danish case, but in other places, they're not saying you should never do these things - only that you don't do it for a fixed period of time if you want bailout money.

[NovemberWhiskey]

> Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments.

You present that as a statement of fact; but it's not at all clear to me why that should be true. Can you give your thinking on that?

A company may not be paying a dividend because it's reinvesting; or because it's unable to do so because it's making a loss.

Do you think Facebook (no dividends; almost completely dependent on advertising budgets) is a less vulnerable, less risky investment than AT&T (regularly pays substantial dividend)?

[Saaster]

Companies that intentionally run with razor-thin balance sheets and don't have any buffers built in to withstand shocks, are more fragile than companies with some buffer, all other things being equal.

If the company chooses to pay out said buffer as dividends, it's to the benefit of shareholders. That's completely fine, market working as intended! But they shouldn't then be able to turn around and get state aid because the lack of said buffer now makes their company non-viable, at least not without restrictions like the Danes are imposing (no future dividends). To do otherwise incentivizes creating these fragile bufferless companies, and puts companies that do have a buffer at a competitive disadvantage.

What Denmark is doing, is saying you can get some aid to help your company, but going forward you must pay us (the society who supports you) back before you pay your investors. Unfortunately the dividend restriction period is capped at two years, while it should really be for an indefinite time.

[NovemberWhiskey]

> Companies that intentionally run with razor-thin balance sheets and don't have any buffers built in to withstands shocks, are more fragile than companies with some buffer, all other things being equal.

That's true; but it's not at all the statement you made originally, is it? Do you actually have some data that suggests that dividend-paying companies are more likely to be run as you described?

Contrary example: AAPL in its Q1 2020 filing reported ~$200bn of cash, equivalents and marketable securities on hand. AAPL also pays a dividend.

Moreover: it's absolutely not to the benefit of shareholders to have a company fail just in order to pay a dividend (unless the dividend yield is something ridiculous); shareholders are often interested in a combination of growth and yield, and the value of the stock going to zero as the company fails is a bad outcome.

In fact, companies that pay a dividend by definition have a buffer. They can chose not to pay a dividend.

[Saaster]

That was however the intent of the statement: Companies that pay dividends or make share buy-backs are more vulnerable in a crisis [compared to otherwise identical companies who build a cash buffer].

I disagree that companies that pay a dividend by definition have a buffer. If the income plummets (like in non-essential retail at the moment), they have no hypothetical dividend buffer to fall back on, that if not paid out would keep them in business.

[NovemberWhiskey]

> That was however the intent of the statement: Companies that pay dividends or make share buy-backs are more vulnerable in a crisis [compared to otherwise identical companies who build a cash buffer].

That's a false dichotomy though.

Option three is what, for example, most of the profitable/zero-dividend tech firms do - which is to reinvest to boost market share, perform research and development and enter new businesses instead of returning a dividend to shareholders.

No dividends; but no cash pile either. Under your theory, those companies are no better equipped to deal with a crisis.

[tonyedgecombe]

Companies that pay dividends

What’s the point of a company that never pays a dividend.

[wsc981]

The stock value can still rise. Apple didn't pay dividends for a large part of its existence, yet especially after the year 2000 it would have been a great stock to own.

> Apple's long stretch of not paying any dividends reflected Jobs' opposition to them. During Jobs' second tenure at Apple from 1997 to 2012, the tech giant didn't pay a single dividend, even as its cash hoard ballooned to over $50 billion in 2011.

"The cash in the bank gives us tremendous security and flexibility," Jobs said in 2010.

But by 2012, and after Jobs had passed the reigns to Tim Cook, Apple finally reinitiated its dividend, making it the company's first dividend since 1995. The combination of Jobs' passing in 2011 and a cash hoard exceeding $100 billion in 2012 marked the beginning of a new era for Apple. Overnight, Apple became a formidable dividend stock -- and it looks like it's going to stay this way.

Source: https://www.fool.com/investing/2016/08/29/apple-dividend-his...

[mrfredward]

And the underlying economic reason for Apple's shares to go up when it wasn't paying a dividend is that as Apple accumulated cash and became more profitable, the chances that it would pay a fat dividend someday (even if not in the near future) kept going up.

If companies didn't ever pay a dividend or buyback shares, the whole thing would be a ponzi scheme. The company takes money in an IPO, and then investors shuffle money among themselves to make it look like they have a profit, but it would collapse if people want to cash out. When companies eventually distribute profit to investors however, it becomes possible for cash to leave the system without all the paper value disappearing into thin air.

[Mikeb85]

Literally the point of markets is for companies to eventually pay back investors. A market without buybacks or dividends is a ponzi scheme.

[MiroF]

So many people who don't understand this.

[soperj]

Berkshire Hathaway has only paid 1 dividend ever (in 1967). Buffett can invest that money better than I can, so why bother taking money out of the company.

[mrep]

But they have been buying back their stock which is effectively paying out a dividend with automatic reinvestment.

[soperj]

barely. It's not something they do regularly.

[WrtCdEvrydy]

Most tech companies don't dividend... you buy the stock or sell it based on their current profits.

[brtkdotse]

I cannot for the life of me understand why’d someone who’s not an institutional investor (say Buffet) would want to own stock in a company that doesn’t pay dividends. It’s basically buying a vanity plate and hoping someone else will buy it for more down the road.

[martin_bech]

Because taxes.. Warren has explained this himself many times. The US Tax system makes it better to have rising stock prices, than dividends.

[user234683]

I've had this question in the past and I found this post helpful:

> The fundamental answer to all of this is that the profits must be shared with shareholders at some point. This is what terminates the infinite regression. If a company believes that they can retain their earned profits to further grow and generate even more profits, they will do so. However if a company continues to grow and do well, eventually they will accumulate so much cash in the bank that they can’t find good use for all of it. At this point they will have to pay it out to shareholders through a dividend or stock buyback. If they refuse to, at some point the shareholders will band together and vote for new management that will pay it out.

https://stuffexplained.wordpress.com/2013/10/13/why_buy_stoc...

So even if the company does not pay dividends currently (reinvesting it instead), there will eventually come a point at which their growth flatlines, and they will start paying out dividends. If the market is rational, it will have forecasted this flatlining and the stock price will have taken that into account.

[evmar]

I used to have some trouble with this one but if you think about it it's the same as "why would anyone want a dollar, it's just a piece of paper". The answer is that for literally anything, if you can exchange the thing for value, then it effectively has that value.

(Or alternatively, you say that dollars are also vanity plates, and are as worthless as stocks.)

[AnthonyMouse]

It's because someone else does in actual fact buy it for more down the road more often than not.

[option]

if you think about it share buybacks are like dividends but with much better tax rate for investor

[MiroF]

> you buy the stock or sell it based on their current profits.

Yes, based on the anticipation of future dividends and share buybacks. Stock trading is more than just gambling but for profits.

[iffybookmark]

Exactly. So, give breaks to companies that cannot pay dividends, because the ones that do are the ones who are obviously signaling that they are fine.

This isn't some slam against paying dividends, though. I do agree with you. I am fascinated at companies like Snapchat whose shares command no voting power and do not pay a dividend.

However, as far as signals go, "here, we are so well capitalized that we think you can invest this money better than we can" is pretty strongly saying your company is in good financial shape.

[MiroF]

> So, give breaks to companies that cannot pay dividends, because the ones that do are the ones who are obviously signaling that they are fine.

This is correct - but the opposite of the GP comment.

> I am fascinated at companies like Snapchat whose shares command no voting power and do not pay a dividend.

Pricing here is based on the anticipation of future dividends or buybacks.

[dijit]

Not sure, maybe something to do with providing work and services?

Maybe you mean "whats the point in investing in a company that will never pay dividends".

[tekdude]

Commodities and precious metals don't pay dividends, yet people invest in them with the expectation that the value will rise so they can sell them later.

[rapsey]

Technically that is speculation not investing.

[xchaotic]

You mean like Amazon? The stock price rises and if you want out you sell some.

[tonyedgecombe]

The assumption there is at some point in the future they will start issuing dividends.

[onion2k]

Like Google? Or Facebook? Or Tesla?

[MiroF]

Do you know a priori that none of these companies will ever pay dividends or buy back?

So many facile understandings of pricing in these comments - there is a real mechanism that ties profits to pricing, it's not just "sell when it goes up"

[gspr]

Develop itself and its product for future success?

[dathinab]

Companies exists to:

1. Produce products, especially essential ones.

2. Give people work, so that they can afford products. Especially essential ones.

Everything else is just (potentially useful) junk capitalism added on top of it. So even if the concept of dividends would be forbidden many thinks would still go on like before, companies would still exist and make sense. Just the stock marked would probably be gone. Maybe that wouldn't be so bad IMHO.