Thursday, November 15, 2012

Who's Looking Out for Shareholders?

The payout ratio of Large-cap companies earnings to its shareholders has decreased consistently over the decades since the 1930's where there was avg 80% payout. Decades ago it was not uncommon for companies to sport huge dividend yields. There has been a slight increase in dividend payouts in the past few years I speculate because of changes in tax laws toward individuals. It is no surprise to me that during the 1990's dividends did little for investor returns.

What I'm concerned about is the possibility of an epidemic of loosely issued stock options grants at companies that destroy shareholder value. Some major large-cap tech companies during the tech bubble were destroying shareholder value by issuing millions upon millions of stock options then having to repurchase those shares with cash that could have been payed to shareholders in the form of dividends or buybacks that actually benefited the investor. Instead they were buying back so EPS would grow at the rate the street was looking for. It harms shareholders to dilute the shares. Would you rather have a 50% cut of a companies profits or a diluted 48%? Is this trend of decreasing dividends and options going to continue and what are the implications to investors? What is happening to the cash? are they just doing more buybacks of options grants in recent years?

And also why don't these companies issue shares instead of options? I don't understand the obsession with options. Just give me the shares. Everybody needs to quit speculating.

No comments:

Post a Comment