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Oh dear, very bad, how sad

So Matthew Lynn decides to tell us how Meta paying dividends really changes everything:

And yet it will surely just be the first of the technology giants to start returning cash to its owners. Apple stopped paying out anything under Steve Jobs – he thought it was a crazy waste of money that he could spend on new gadgets instead – and has only paid out the minimum possible since he died.

At some point that will have to increase. Amazon announced blockbuster profits last week, and moves such as showing ads on Prime should drive earnings even higher, so it is surely only a matter of time before it starts a payout.

Alphabet, the owner of Google, may not be able to resist paying something out of its $113bn cash pile for much longer. With surging revenues from its crackdown on password sharing, Netflix is making lots of money, and may be forced to return some of it.

Nvidia will have plenty of room to increase the paltry 0.3pc it currently pays to its shareholders, while if Tesla can afford to pay Elon Musk $50bn, assuming he can overturn the court ruling against that decision, surely it can afford to pay something to its shareholders as well?

The giant tech companies will start to rival the oil, pharma and banking conglomerates for their ability to deliver huge sums of money for their shareholders every quarter. Given their size, their semi-monopolistic positions, and their growth rates, they will probably quickly overtake them.
Next, far more money will be available for the rest of the market. If the payouts start to match the $100bn delivered by the energy giants, and there is no reason why it shouldn’t, then most of that cash will find its way back into other equities.

That will drive the whole market upwards, as cash that was sitting on the Meta or Alphabet balance sheet starts to be deployed elsewhere.


They’ve all been returning cash to shareholders in vast great chunks in recent years. Apple $90 billion in the past year alone (if I’m reading Mr Google right). Stock repurchases do exactly the same thing as dividends, send money back out the corporate treasury into the hands of shareholders.


15 thoughts on “Oh dear, very bad, how sad”

  1. Yeah but no but

    Shirley a stock repurchase is a one off event ? A dividend is a yearly sum for as long as one holds the shares. It is seen by many to be the same as earning interest from a bank.

    Well that’s how I treat it. I get small dividends from my shares. Can’t quite live permanently on Swan Nuggets but they are very welcome.

  2. “A dividend is a yearly sum for as long as one holds the shares. It is seen by many to be the same as earning interest from a bank.”

    Yep, that’s how I view them. I’ve held shares in a couple of my old employers for years and a few times every year they pay me nice dividends. A nice little bonus. Same goes for the share portfolio my Mrs owns.

  3. “Shirley a stock repurchase is a one off event ? “

    UK yes, US not so much.

    The American tax system will take a slice of dividends, but is more lenient with share sales.

    So Yanks routinely buy shareholdings with the intention of generating a pseudo-income by selling a small proportion each year. Company managements know this, and distribute surplus capital accordingly.

  4. CJN

    So each year Mr Blank buys 10 shares from Megacorp Inc but sells 5 of them back, kind of thing ?

    I guess if it is managed, then it is not so tiresome as the investment company deals in milions of these transaction, but a pain if you are doing it yourself.

  5. Speaking as a “small investor” whose portfolio is optimised for income (outstrips my pensions by a country mile) my personal experience of stock buy-backs is essentially negative – the supposed “increase in value” of outstanding stock rarely seems to materialise, and, in my case, has never made up for the dividends that could have been paid instead.

    The “city” loves them, of course… Think of all the lovely fees and commissions that their mates are able to rake in for doing the buy-backs, and “you scratch my back…”.

  6. Ottokring

    It’s more like Hiram J Blank Snr leaves 100,000 shares in MegaCorp to Hiram J Blank Jnr, who sells 2,000 of them each year to finance living expenses.

    It would be odd to be both buying and selling in the same year, certainly not in that ratio. That could done as trading, to benefit from price changes, but it’s not the underlying mechanism.

    The fundamental is that the company makes profits, and the investor accesses those profits to make his living by slowly selling his stake.

    Large shares can cause liquidity problems, eg Berkshire Hathaway Class Shares are currently at $586,750, which woud make it hard to sell progressively to make a pseudo-income. So Buffett introduced Class B shares, which constitute a much smaller part of the company, and are currently at $390.66.

  7. Just a couple of comments about the US tax treatment of dividends and capital gains.

    1. Dividends paid out by US corporations are considered ‘Qualified Dividends’, and receive preferential tax treatment – QDivs are taxed at Long Term Capital Gains rates (versus Short Term CG, which are taxed at ordinary tax rates).

    2. LTCG rates are 0%/15%/20%. A couple (Married Filing Jointly) can have a minimum of $125k of gross income, up to ~$175k gross income, and still have the QDivs/LTCG income stay within the 0% LTCG rates. Above that spills into the 15% bracket.

    3. Federal tax code still provides ‘free’ step-up of basis at death, so reasonable accumulated wealth that includes relatively large unrealized capital gains can be passed onto heirs with a tax benefit. Estate tax exemption is currently ~$22M.

  8. Just a couple of comments about the UK tax treatment of dividends…

    Since dividends are paid out of post-corporation tax profits, we won’t tax dividends in the hands of basic rate taxpayers.

    Oh, hang on, yes we will. But we’ll allow you to receive £5,000 dividends before we start.

    Did I say £5,000? Sorry, I meant £2,000.

    No, wait, £1,000.

    Was that £1,000? Mouse-slip! £500, I meant £500.

  9. Martin Near The M25

    I think CGT is one of the worst taxes. If I think the management of company X is doing a bad job I’ll lose a big chunk of value if I sell and buy something I like better. If bad management will cost me 10% of the gains this year I might as well stay put as I’ll be fined 20% by the effing state.

    Not to mention trying to calculate it is like something out of quantum mechanics if you’ve bought shares over a number of years and might have sometimes sold them within 30 days of a lunar eclipse or whatever the rules are for working out the cost basis.

    Am I wrong?

  10. Among tech companies, and probably others, sometimes companies buy back shares to offset the new shares issued through employee stock option exercises, lessening the risk that the dilution will cause dramatic decreases in share prices.

  11. Do those reported buyback numbers include the shares which the companies buy to give to employees as part of their compensation/retention plans?

  12. @TD – didn’t see your comment before I wrote mine. Do you know if/how that activity is differentiated in reporting?

  13. Would I be correct in saying that, whenever commentators bang on about this or that corporation making vast profits, what is really happening is that they are actually making very modest profits but on a massive scale? For instance McDonalds has several outlets in practically every town and city in the world, countless millions of them. If every one contributed even a small amount to McDonald’s overall profits, it is still going to be a pretty big number.

  14. On the statement of cash flows you can see how the firm spent buying in shares and brought in from selling new shares, but it won’t breakout how much from new shares came from option exercises vs other share sales.

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