Investing Catechism

[nitro]

"Private equity has proved better at enriching its own managers than producing investment profits for U.S. pension funds over the past decade, according to a study prepared for the Financial Times by academics at Yale and Maastricht University..."

http://www.cnbc.com/id/46116290

 

[trendlover]

That is interesting link nitro.

 

[doublet83]

Financial theory states that a company is worth the discounted value of its future expected dividends. Even if a company like AMZN doesn't pay dividends, and no one expects it to pay dividends, this theory states that this fact does not affect the value of the stock. The cash that the company keeps on its balance sheet is simply invested, allowing the company to grow faster than it otherwise would be able to do, letting it pay more dividends in the future.

Other than tax implications, depending on what theory you are citing, dividend policy does not affect a company's value.

Various dividend discount valuation models are taught during CFA level 2 for equity valuation. Although they might be logically sound, no one applies them in the real world.

For the most part, investors in stocks don't care about dividend policy, beyond a few instances where it might be viewed as management signaling.

There are some stocks like utilities or REITS or canadian income trust funds, or MPLs, where the investor base are heavily comprised of dividend seeking investors, and in these cases investors tend to care more about dividends than usual.

 

[nitro]

I suggest you read this thread, one post at a time, from the beginning.

Quote from doublet83:

Financial theory states that a company is worth the discounted value of its future expected dividends. Even if a company like AMZN doesn't pay dividends, and no one expects it to pay dividends, this theory states that this fact does not affect the value of the stock. The cash that the company keeps on its balance sheet is simply invested, allowing the company to grow faster than it otherwise would be able to do, letting it pay more dividends in the future.

Other than tax implications, depending on what theory you are citing, dividend policy does not affect a company's value.

Various dividend discount valuation models are taught during CFA level 2 for equity valuation. Although they might be logically sound, no one applies them in the real world.

For the most part, investors in stocks don't care about dividend policy, beyond a few instances where it might be viewed as management signaling.

There are some stocks like utilities or REITS or canadian income trust funds, or MPLs, where the investor base are heavily comprised of dividend seeking investors, and in these cases investors tend to care more about dividends than usual.

 

[Nine_Ender]

Quote from nitro:

I suggest you read this thread, one post at a time, from the beginning.

Let me save some time. Its an idiotic thread based entirely on flawed theory. Dividends are but one of many aspects that affect the value of a company as an investment.

It is extremely easy to find ten high dividend stocks whose valuation crashed and burned, and ten low ( or no ) dividend stocks that outperformed their peers over a decade or more.

I am amazed how persistant you are pushing deeply flawed theory ( not just on this topic, but on several quite different topics ) despite mounds of evidance that you are wrong. Its astonishing really.

 

[trendlover]

doublet83 poster, nitro said "tangible"

http://es.thefreedictionary.com/tangible

 

[Nine_Ender]

Quote from nitro:

I must not be making myself clear. Why do you as an investor care that AMZN has every single dollar in the Universe in earnings, and everyone on the planet owns AMZN, and the stock price is at 1,000,000? How does that translate into you making money unless the company pays out a dividend?

Example above clearly shows why Nitro is truly the biggest idiot savant on this site. Uh, earth to Nitro, you can sell the stock !!!

 

[trendlover]

Nine Ender, you are really rude to say idiot. If you read this thread, nitro is talking about making the bet for the greater fool theory compare to money in the pocket. You think he is stupid and can not understand to buy low and sell high? That is not what he talking about.
Please apologize to nitro.

 

[caementarius]

I think there are a couple of ways for money to go into your pocket:
The company is bought out
The company pays dividends

Companies should pay dividends once they reach a point that they aren't making efficient use of their cash. At that point, they should declare a dividend or buy back shares.

Your equity interest is a claim on assets and future cash flows. For many companies, especially high growth companies, you aren't going to see dividends until, for example, Google turns into an equivalent of GE in a fully matured industry. Also, there's the tax consequence of dividends which can make buybacks more attractive for the investor.

I think in the end it makes sense to trade claims rather than pushing a bunch of cash around every quarter and that's why things are the way they are.

 

[doublet83]

Truly it a waste of time to attempt to impart any knowledge onto some of you people. Lessen learned. I just cited some basic academic theory that was relevant to the topic. I'm not trying to argue with whatever point you are trying to make. If you're trying to say that stocks should have limited value beyond tangible cash flows, note that I did not try to argue that point on my previous post.