How can companies which pay dividends to shareholders remain competitive?

cepheus

chewmylegoff wrote: »

You must love banks then - paying huge bonuses to staff at the expense of the shareholders. Employee power!

Why should I disagree with the following statement taken from that summary?

the rights of workers and consumers and human rights generally

Don't the higher paid staff get much of their 'income' as shares or share options anyway?

CLAPTON

Andy Haldane has never had a proper job, having joined the BoE straight from UNi.

He has never started up a company of his own, never worked in productive industry.

He was however

In 2005 Haldane assumed responsibility for the Systemic Risk Assessment Division within the Financial Stability department. In 2009 he became the Bank of England's Executive Director of Financial Stability.[1][3]

so he was responsible for financial stability before and during the financial crisis.

So just a civil servant looking for a better job in some European or Other international organisation

An idiot, looking for a secure state employment for the rest of his life.

Pennywise

chewmylegoff wrote: »

the idea that a company that doesnt have to pay dividends to shareholders would somehow be more competitive rather ignores the fact that there is a cost to capital wherever you get it from...

The problem is that shares have become a commodity that is being traded, where there is now an expectation of capital growth (share price) rather than a simple dividend for return on capital invested.

The company itself sees none of the benefits of the seemingly ever increasing share price, as the "profit" is made by the prior shareholders, BUT they are under pressure to maintain dividend earnings ratios, so they have to increase dividends as the share price increases.

All you need to do is look at price/earnings ratios for listed companies compared with private companies - there is massive disparity.

The stock markets have hijacked share trading and turned it into something it was never intended to be when the first Acts of Parliament were introduced a few centuries ago.

We're now a long way from Joe Public investing his money directly to a company, in the hope of a dividend higher than interest, and maybe a little capital growth along the way, with the company getting the money it needs to grow/start up that would otherwise be too expensive.

The answer is, of course, crowd funding, which is gathering speed, which puts the Joe Public investor back in a position where he can invest in other Joe Public's businesses, without all the City spivs getting their share.

Generali

How are the owners of a company meant to get a return on their investment without dividends?

Crowdfunders are still going to want to earn a return unless they're idiots or rich enough not to care. If the latter I suggest that they won't stay rich for long.

CLAPTON

Pennywise wrote: »

The problem is that shares have become a commodity that is being traded, where there is now an expectation of capital growth (share price) rather than a simple dividend for return on capital invested.

The company itself sees none of the benefits of the seemingly ever increasing share price, as the "profit" is made by the prior shareholders, BUT they are under pressure to maintain dividend earnings ratios, so they have to increase dividends as the share price increases.

All you need to do is look at price/earnings ratios for listed companies compared with private companies - there is massive disparity.

The stock markets have hijacked share trading and turned it into something it was never intended to be when the first Acts of Parliament were introduced a few centuries ago.

We're now a long way from Joe Public investing his money directly to a company, in the hope of a dividend higher than interest, and maybe a little capital growth along the way, with the company getting the money it needs to grow/start up that would otherwise be too expensive.

The answer is, of course, crowd funding, which is gathering speed, which puts the Joe Public investor back in a position where he can invest in other Joe Public's businesses, without all the City spivs getting their share.

the great benefits for a company raising capital by issuing shares are
- no expectation for the company to repay the capital
- no obligation to pay dividends and
- often no expectation of paying dividends at least for the first few years.
- an easy exit from the capital provider (share holder) by being able to trade their shares on an organised stock market

this allow companies to start up without a debts burden or a need to pay interest.

I don't know how crowd funding works so can't compare or contrast the two.

IronWolf

Well this is just nonsense. Any company that can reinvest profits at an attractive rate of return will do so, if it cant it pays out dividends. Boards have a huge incentive to grow the company and profits. In fact a lot of companies 'invest' money in the company even at very poor rates of return to the detriment of shareholders.

To think that a company like Apple could simply invest its $100bn + cash into its business and it would simply grow sales & profit is just laughable. If it could, it would.

He talks as if dividend payments are just 'lost' from the economy, which is ridiculous. They go to investors who then have money to invest in other companies that may have much better prospects for organic growth. There is a big correlation between high share prices and the number of IPOs, companies seeking cash to grow their business.

cepheus

IronWolf wrote: »

Well this is just nonsense. Any company that can reinvest profits at an attractive rate of return will do so, if it cant it pays out dividends. Boards have a huge incentive to grow the company and profits. In fact a lot of companies 'invest' money in the company even at very poor rates of return to the detriment of shareholders.

To think that a company like Apple could simply invest its $100bn + cash into its business and it would simply grow sales & profit is just laughable. If it could, it would.

He talks as if dividend payments are just 'lost' from the economy, which is ridiculous. They go to investors who then have money to invest in other companies that may have much better prospects for organic growth. There is a big correlation between high share prices and the number of IPOs, companies seeking cash to grow their business.

I was under the impression that most of the tech companies did reinvest most of their profits. Apple's yield is only 1.7% the last time I checked. Perhaps if all they can do it pay back shareholders it should be taxed.

Something about Apples investments here, seems like they are becoming a tax avoiding, fund management/hedge fund group.

Interesting article from Richard Murphy on the issue of paybacks to shareholders

This is from the FT this morning: For every dollar the top US public companies spend on investment, they are returning eight or nine dollars to shareholders. In one sentence the whole crisis if neoliberal capitalism is succinctly summarised. And it is not that much different here. When the cost of capital is low and investment should, as a result, be a top priority for business it is investing tiny amounts and is instead fuelling inequality by paying exceptional dividend returns and by buying back shares to boost share prices and so trigger executive bonus schemes.

http://www.taxresearch.org.uk/Blog/2015/07/27/why-neoliberalism-is-failing/#sthash.nbWzzUZo.5VuRaz9x.dpuf

Generali

cepheus wrote: »

Something about Apple's investments here, seems like they are becoming a tax avoiding, fund management/hedge fund group.

Apple has to pay 35% tax on cash profits repatriated to the US. That's why they hold huge quantities of cash.

cepheus wrote: »

Interesting article from Richard Murphy on the issue of paybacks to shareholders



http://www.taxresearch.org.uk/Blog/2015/07/27/why-neoliberalism-is-failing/#sthash.nbWzzUZo.5VuRaz9x.dpuf

Try looking up 'secular stagnation' as to why companies aren't investing.

purch

IronWolf wrote: »

Well this is just nonsense.

Have you only just noticed :eek:

chewmylegoff

Pennywise wrote: »

The problem is that shares have become a commodity that is being traded, where there is now an expectation of capital growth (share price) rather than a simple dividend for return on capital invested.

The company itself sees none of the benefits of the seemingly ever increasing share price, as the "profit" is made by the prior shareholders, BUT they are under pressure to maintain dividend earnings ratios, so they have to increase dividends as the share price increases.

All you need to do is look at price/earnings ratios for listed companies compared with private companies - there is massive disparity.

The stock markets have hijacked share trading and turned it into something it was never intended to be when the first Acts of Parliament were introduced a few centuries ago.

We're now a long way from Joe Public investing his money directly to a company, in the hope of a dividend higher than interest, and maybe a little capital growth along the way, with the company getting the money it needs to grow/start up that would otherwise be too expensive.

The answer is, of course, crowd funding, which is gathering speed, which puts the Joe Public investor back in a position where he can invest in other Joe Public's businesses, without all the City spivs getting their share.

Stock markets have always been a place for speculation, although I respectively disagree that everyone buying shares is hoping for explosive capital growth. People invest in a variety of different ways - it isn't all loons buying penny shares on aim and hoping to hit the mother lode.

Crowd funding is no different to traditional capital raising - people don't invest capital with the expectation of losing all their money and not receiving a return, and the middleman still takes a similar cut to a corporate broker underwriting a placing or IPO (which are both ways in which joe public can invest their money directly into a company as opposed to buying in the secondary market).

Of course listed companies need to have regard to their share price - they are run for the benefit of their shareholders. A crowdfunded company needs to maximise value for shareholders too, all companies do regardless of how they raise capital - crowd funding isn't some kind of exercise in mass philanthropy.