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Applied Game Theory or How to pay a dividend without paying a dividend

71 points by Hermel 10y ago

mapleoin 10y ago
They are paying a dividend, a stock dividend in this case. Stock dividends are deemed to be more favourable to the investor because they have now been given the choice of when they want that part of the company to be transformed into cash. Both a cash dividend and a stock dividend dilute the existing shares price by exactly the same amount at the time that a company chooses (as long as they are of the same value of course). In the case of the stock dividend, the investors themselves are not diluted however. Koninklijke Boskalis Westminster lets its shareholders choose whether they want to receive their yearly dividend in cash or in the form of newly created shares, creating a paradox in which everyone gets less by choosing more. This is not necessarily true. It depends on the current and future value of the company. If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement.
- DennisP 10y ago
  By that argument, a 2:1 stock split is equivalent to paying a cash dividend totaling half the company's market cap.
  - mapleoin 10y ago
    It is, yes, if you mean "stock dividend" rather than "cash dividend". Although I'm not sure about the tax implications.
    - DennisP 10y ago
      Yes, I agree that a stock dividend is equivalent to a stock split. But you argued that a stock dividend is also equivalent to a cash dividend. In that case a cash dividend is equivalent to a stock split, which is clearly not the case. A stock split leaves shareholders with exactly the same share of the company they had before, it's just divided into smaller increments. It also leaves the company's balance sheet exactly the same. What's actually equivalent to a cash dividend is a stock buyback. That gives each shareholder a larger portion of the company, and removes cash from the balance sheet. Companies will often do stock buybacks in place of cash dividends. They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. If a company awards new shares to one specific person, that's different. And you're right, it has the same effect on all the other shareholders as if the company paid that person cash. That person gets more and it comes out of everybody else's pocket. But when everybody gets new shares it's just a split.
      - mapleoin 10y ago
        > But you argued that a stock dividend is also equivalent to a cash dividend. They are not equivalent, no. That's what I was trying to emphasize with the difference in choice available to the investor. > They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. Neither do cash dividends. You own $100 of a company worth $1000. The company issues a 5% dividend. The company is now worth $950. You now own $95 of the company and got a $5 dividend. Wealth unimpacted (disregarding tax and future changes in the company's valuation of course).
- jackgavigan 10y ago
  > If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement. 1. Not if you use the cash dividend to buy more shares. 2. The same thing would happen if you sold the "dividend" shares as soon as you received them.
  - mapleoin 10y ago
    I agree.
- kgwgk 10y ago
  Getting a stock dividend is (assuming everyone does get it) a non-event. You had $x in shares of a company valued at $y before the transaction, and you have exactly the same afterwards. The only difference is that you had 1000 shares and now you have 1045. Saying that getting stock dividends is more favourable to the investor that getting cash dividends is equivalent to saying that getting no dividend at all is more favourable than getting a cash dividend.
  - spacecowboy_lon 10y ago
    depends on how you are taxed
    - kgwgk 10y ago
      If your point is that depending on how you are taxed you might prefer not getting anything than getting a cash dividend, I agree.
josh_fyi 10y ago
Not paying dividends is actually quite common in tech companies https://www.quora.com/Why-do-only-a-few-technology-stocks-pay-dividends https://www.quora.com/Why-do-only-a-few-technology-stocks-pa...
plopilop 10y ago
So the company issues more and more shares every year. Doesn't that deflate the value of an individual share ? (More shares, but the company still has the same overall net worth.) If so, is it really more interesting for the shareholders to accept new shares, or is there a threshold, or some prisoner's paradox ? Also, this scheme leads to an exponential increase of shares, aren't there some laws against it ? It seems a bit suspiscious to me. Complete noob in finance/market rules, don't hesitate to correct me.
- andrewaylett 10y ago
  Suppose a privately-held company is worth $1.1B, and has 1M shares over 1k shareholders. Each shareholder has a net worth of $1.1M. The company decides to issue a dividend of $100 per share. If they hand out cash, that means the company is now worth $1B, and each shareholder has $100k more in cash. But their shares are now only worth $1k each, instead of the $1.1k they were worth before. The shareholder's net worth is unchanged. If they hand out shares, there are now 1.1M shares in the company, and each is worth $1k, the same value per share as with the cash dividend. Each shareholder has an extra 100 shares, and their net worth is still unchanged from before the dividend. So the key thing is that if they paid the dividend in cash, the overall net worth of the company goes down -- so everything balances out between shares and cash. Of course, for a publicly-traded company the value of the stock doesn't necessarily match the current net worth of the company, and the share price fluctuates. So you'll need to work out for yourself whether you'd prefer to have the stock (with the capital gains liability) or the dividend (with its tax liability), possibly based on how long you intend to hold the stock.
  - plopilop 10y ago
    Thanks, I got it. More cash for the company, and same net worth for shareholders (even more worth if you take taxes into account). So this would lead to an exponential growth to the number of shares? It really looks like a geometric progression. And, at the end, a huge amount of shares, each worth nothing.
    - 10y ago
JeromeLon 10y ago
> creating a paradox in which everyone gets less by choosing more This is so misleading. When the company in not giving $10 of dividend, the whole company has $10 more on its bank account, so it's worth $10 more overall, distributed across all shares. Now if one share (worth $10 at current valuation) is created, all the shares are back to their original value, and if that share is given to a shareholder, he is effectively owning $10 worth more of the company than before. He didn't get less. And if everyone does it (or everyone but one shareholder, or any other combination) everything is still valid.
- Hermel 10y ago
  The dilution does not affect everyone equally. Consider the extreme case of a company with only two outstanding shares and 100$ in assets, so each share trades at 50$. Now, the company emits an extreme dividend of 50$ per share. The first shareholder choses cash andthe second one stocks. Now, the first one ends up with 50$ in cash an 1/3 of a company worth 50$, while the second shareholder ends up owning 2/3 of the firm, which is worth only 33$.
  - mapleoin 10y ago
    You're missing one important event. In the moment that the dividends are issued (regardless of whether they are stock or cash) a part of the company's value transfers into those dividends. Your example cannot work because a company worth $100, cannot create new shares worth $100 ($50 per share). (It could theoretically distribute a cash dividend of $50 per share, but then the value of the outstanding shares would be $0). If it were to distribute say 50% per share. Then it would create two new shares (in addition to the existing two). This would mean the new value per share would be $25. So investor A has one share worth $25 and a cash dividend of $25 (he owns 1/4 of the company) Investor B has one share worth $25 and one (dividend) share worth $25 (in total 1/2 of the company).
    - apoverton 10y ago
      This is also an example of a repeated game, so over time if they maintained their strategies, investor B would own the whole company. Also depending on how the company operates, there is another element of game theory because the controlling shareholder could elect to cancel all future dividends. if you're the newly minted majority shareholder, it's probably in your favor to do this immediately. In that case, the Nash equilibrium seems to be both parties choosing the stock dividend (and effectively getting nothing). While the 2 shareholder example is an oversimplification in this example, after enough plays of the game (i.e. dividends) a large shareholder could take control of the company if the other shareholders always choose cash.
Scirra_Tom 10y ago
If the company is doing badly, rational actors will take cash which could hurt the company more at a difficult time. If this has not been accounted/planned for, it could hurt the company.
cousin_it 10y ago
Yes, stock dividends are effectively the same as stock splits, and both should be no-ops (apart from obscure legal differences). But I don't see the game theory angle. Choosing between cash and stock dividend is equivalent to choosing between stock buyback and no-op. In both cases, I don't see why your choice should depend on what other shareholders choose.
- nabla9 10y ago
  No they are not. Stock buybacks are effectively same as dividends. If company buys stocks from the market , it increases the value for the shareholders. https://en.wikipedia.org/wiki/Share_repurchase https://en.wikipedia.org/wiki/Share_repurchase
  - deleted 10y ago
    [deleted]
  - kgwgk 10y ago
    What do stock buybacks have to do with the distinction between stock "dividends" and cash dividends?
  - nappy-doo 10y ago
    Not quite. Buybacks aren't taxed the same as dividends (in the US). As such, they should be worth more than dividends to the shareholder: (all other things being equal, your ownership stake increases from the buyback).
golergka 10y ago
I don't know much about this, but it seems strange. When company issues new shares, it makes existing share owners percentage of the company go down — so shouldn't they have control on when such an operation takes place?
- kgwgk 10y ago
  In this case the new shares are distributed to the existing shareholders, so they won't be diluted unless they want (and given that some will opt for the cash, those who don't will end up owning a larger percentage of the company).
antihero 10y ago
Isn't the income from selling any shares also taxed, though?
- ojbrien 10y ago
  Yeah but as capital gains I believe, whereas a cash dividend is taxed as income (Income is taxed at a much higher rate than capital gains)
  - harryh 10y ago
    If you have held the stock long enough then dividends can be taxes at the cap gains rate. This is what a "qualified" dividend is. https://en.wikipedia.org/wiki/Qualified_dividend https://en.wikipedia.org/wiki/Qualified_dividend
dsjoerg 10y ago
There is no game theory here. The value of each person's decision is not affected by the decisions of others. It's important to remember that the company's shares are traded on a public market. The shares distributed by the company are valuable and can be sold for the same amount of money as the dividend you could have received. The key fact that the article ignores is that the shareholders collectively own the company. So if they all decline the dividend, they are effectively electing for the company they own to hold the cash (that they own by owning the company).
- lanevorockz 10y ago
  The shares are basically the a piece of the company. By issuing new shares it automatically depreciates the value of each share, so the company is worth the same but you own a smaller share of the company. You can end up in a grey area between two situations. 1. Everyone takes cash and you get the expected share price 2. Everyone takes shares and the value expected is halved
  - ghshephard 10y ago
    Issuing dividends also depreciates the value of each share as well. (By exactly the total amount of the dividend / total number of shares.)
    - lanevorockz 10y ago
      I missed that, financials are the same so they should amount for essentially the same value. Still the dynamics of both are different and usually depreciation of the dividends is factored out on the price of the stock. I wonder if they are pricing the stock just before dividend and if that's fair.
- ghshephard 10y ago
  What the author ignored, is that when dividends are issued, the value of stock (almost) always goes down by exactly the value of the dividend on the ex-dividend date.
blue1 10y ago
That's called a scrip dividend, by the way.
- kgwgk 10y ago
  That's the name in Europe, I think. The tax implications vary by country and there are a number of ways that companies can do it. For example, a company can give the option of getting cash while avoiding any actual outflow by giving rights to all the shareholders and selling those rights on behalf of the shareholders who want cash to give them a cash payment instead of the new stocks.
alex95 10y ago
Why does every other title have to have an "or" nowadays? These two are completely unrelated in terms of titles, so why do it?
kriro 10y ago
Possibly very naive question but why are dividends paid at all if it's essentially a noop? If they are paid in cash the stock I own is worth less by the same amount and if they are paid in stocks my initial stock is diluted by the same amount. Do voting and non-voting shares typically receive the same amount of dividends? The only differences I can see between cash and stock dividends is 1) For cash dividends I pay taxes now, for stock I typically pay upon the sale of said stock.* 2) A company issuing cash dividends has less liquid cash in the bank (also applies to the shareholders who get liquid cash). *both are taxed as capital gains here, might be different tax wise in other countries which could complicate things
- AznHisoka 10y ago
  Dividend is cold hard cash in your bank account. Stocks is not cash and needs to be liquified. Your million dollar portfolio could theoretically be worth $0 any day.
  - kriro 10y ago
    I a reasonably liquid market I could just sell my stocks to get cash. If I don't trust the company to grow I should take the cash dividend but probably also sell all my stock in it (and invest it elsewhere).
- harryh 10y ago
  Companies, in general, pay dividends when they have cash that they do not have a productive use for. It doesn't make sense for a company to keep too much cash invested in a low return investment (like a bank account or short term treasuries) so in this case the company gives it back to the owners so that they can use the money more productively. Interestingly enough this generalization is contradicted by several large US tech companies who have accumulated unprecedented cash hordes. It's interesting to think about why this might be happening.
  - kgwgk 10y ago
    It's in part because they cannot distribute that money until it's legally owned by the US parent company and that requires paying some additional taxes.
rskar 10y ago
"...Boskalis can pay a dividend, without actually paying a dividend." That is so very wrong. While the overall picture seems the same, the tangible difference is in what each investor actually has at the end of each transaction: Option 1: Dividends as cash, which means cash leaving the company. Money is transferred from one entity (the company) to another (a group of shareholders). While shareholders are regarded as owners of the company, the nature of their ownership doesn't always work quite the same as say ownership of one's personal effects. Being a shareholder mostly means having certain rights regarding how one gets part of the company's profits and the right to vote on how the company is controlled. Payout of dividends means an immediate reduction of capital for the company, and an increase of income to the shareholders. So at the end the shareholders have the same number of shares and a certain amount of cash. The market value of their shares may drop at first as a reflection of the dividend payments (because technically the company's book value does drop immediately). But let's be honest here, the whole point of shares is the profit potential, so the pricing of shares needn't be in strict alignment with the book value. Option 2: Dividends as new shares means the company holds on to capital. At the end, shareholders get more shares, which may suit them just fine if they're not in any situation that compels them to liquidate. Extra shares means having more to sell. Let's not hyper-focus on book value, since a share price needn't be constrained by that. If there's a good chance that the price per share will rise over time, then getting shares may be more profitable to an investor than getting immediate cash. As the old adage goes, you pays your money you takes your choice. Also, it takes money to make money. But let's not get too hung-up on book value vs. share price, or on whether money truly is a "store of value". There's an awful lot of human desires and human efforts at play here, and in the end it's that interplay of desires and efforts (i.e. what efforts must one undertake to satisfy one's own temporal desires) that brings value to anything.
- mywittyname 10y ago
  Right, these moves are not the same. To be the equivalent, the company would need to offer to buy the newly created shares from the investor at a price equal to the value of the dividend (even if that is a premium over market value). Over a long period of time, Option 2 results in a company with huge cash reserves that aren't generating extra returns (see: apple). This could lead to a situation where the market value of the stock becomes much less than its intrinsic value and a hedge fund (or similar) could acquire a significant holding in the company and compel the board to accept a complete buyout at a discount. Forcing shareholders to accept 20-30% less and leaving them to sue for the difference. Dividends are the end-game for every company. It doesn't matter if they distribute cash or buy back stock -- eventually they need to put money in the hands of investors.

71 points by Hermel 10y ago

They are paying a dividend, a stock dividend in this case. Stock dividends are deemed to be more favourable to the investor because they have now been given the choice of when they want that part of the company to be transformed into cash. Both a cash dividend and a stock dividend dilute the existing shares price by exactly the same amount at the time that a company chooses (as long as they are of the same value of course). In the case of the stock dividend, the investors themselves are not diluted however. Koninklijke Boskalis Westminster lets its shareholders choose whether they want to receive their yearly dividend in cash or in the form of newly created shares, creating a paradox in which everyone gets less by choosing more. This is not necessarily true. It depends on the current and future value of the company. If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement.

DennisP 10y ago
By that argument, a 2:1 stock split is equivalent to paying a cash dividend totaling half the company's market cap.
- mapleoin 10y ago
  It is, yes, if you mean "stock dividend" rather than "cash dividend". Although I'm not sure about the tax implications.
  - DennisP 10y ago
    Yes, I agree that a stock dividend is equivalent to a stock split. But you argued that a stock dividend is also equivalent to a cash dividend. In that case a cash dividend is equivalent to a stock split, which is clearly not the case. A stock split leaves shareholders with exactly the same share of the company they had before, it's just divided into smaller increments. It also leaves the company's balance sheet exactly the same. What's actually equivalent to a cash dividend is a stock buyback. That gives each shareholder a larger portion of the company, and removes cash from the balance sheet. Companies will often do stock buybacks in place of cash dividends. They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. If a company awards new shares to one specific person, that's different. And you're right, it has the same effect on all the other shareholders as if the company paid that person cash. That person gets more and it comes out of everybody else's pocket. But when everybody gets new shares it's just a split.
    - mapleoin 10y ago
      > But you argued that a stock dividend is also equivalent to a cash dividend. They are not equivalent, no. That's what I was trying to emphasize with the difference in choice available to the investor. > They never do stock splits in place of cash dividends, because splits have no effect on shareholders' wealth. Neither do cash dividends. You own $100 of a company worth $1000. The company issues a 5% dividend. The company is now worth $950. You now own $95 of the company and got a $5 dividend. Wealth unimpacted (disregarding tax and future changes in the company's valuation of course).
jackgavigan 10y ago
> If you get a cash dividend now and the value of the company rises in a month, then you've lost out on that upward movement. 1. Not if you use the cash dividend to buy more shares. 2. The same thing would happen if you sold the "dividend" shares as soon as you received them.
- mapleoin 10y ago
  I agree.
kgwgk 10y ago
Getting a stock dividend is (assuming everyone does get it) a non-event. You had $x in shares of a company valued at $y before the transaction, and you have exactly the same afterwards. The only difference is that you had 1000 shares and now you have 1045. Saying that getting stock dividends is more favourable to the investor that getting cash dividends is equivalent to saying that getting no dividend at all is more favourable than getting a cash dividend.
- spacecowboy_lon 10y ago
  depends on how you are taxed
  - kgwgk 10y ago
    If your point is that depending on how you are taxed you might prefer not getting anything than getting a cash dividend, I agree.

josh_fyi 10y ago

Not paying dividends is actually quite common in tech companies https://www.quora.com/Why-do-only-a-few-technology-stocks-pay-dividends https://www.quora.com/Why-do-only-a-few-technology-stocks-pa...

plopilop 10y ago

So the company issues more and more shares every year. Doesn't that deflate the value of an individual share ? (More shares, but the company still has the same overall net worth.) If so, is it really more interesting for the shareholders to accept new shares, or is there a threshold, or some prisoner's paradox ? Also, this scheme leads to an exponential increase of shares, aren't there some laws against it ? It seems a bit suspiscious to me. Complete noob in finance/market rules, don't hesitate to correct me.

andrewaylett 10y ago
Suppose a privately-held company is worth $1.1B, and has 1M shares over 1k shareholders. Each shareholder has a net worth of $1.1M. The company decides to issue a dividend of $100 per share. If they hand out cash, that means the company is now worth $1B, and each shareholder has $100k more in cash. But their shares are now only worth $1k each, instead of the $1.1k they were worth before. The shareholder's net worth is unchanged. If they hand out shares, there are now 1.1M shares in the company, and each is worth $1k, the same value per share as with the cash dividend. Each shareholder has an extra 100 shares, and their net worth is still unchanged from before the dividend. So the key thing is that if they paid the dividend in cash, the overall net worth of the company goes down -- so everything balances out between shares and cash. Of course, for a publicly-traded company the value of the stock doesn't necessarily match the current net worth of the company, and the share price fluctuates. So you'll need to work out for yourself whether you'd prefer to have the stock (with the capital gains liability) or the dividend (with its tax liability), possibly based on how long you intend to hold the stock.
- plopilop 10y ago
  Thanks, I got it. More cash for the company, and same net worth for shareholders (even more worth if you take taxes into account). So this would lead to an exponential growth to the number of shares? It really looks like a geometric progression. And, at the end, a huge amount of shares, each worth nothing.
  - 10y ago

JeromeLon 10y ago

> creating a paradox in which everyone gets less by choosing more This is so misleading. When the company in not giving $10 of dividend, the whole company has $10 more on its bank account, so it's worth $10 more overall, distributed across all shares. Now if one share (worth $10 at current valuation) is created, all the shares are back to their original value, and if that share is given to a shareholder, he is effectively owning $10 worth more of the company than before. He didn't get less. And if everyone does it (or everyone but one shareholder, or any other combination) everything is still valid.

Hermel 10y ago
The dilution does not affect everyone equally. Consider the extreme case of a company with only two outstanding shares and 100$ in assets, so each share trades at 50$. Now, the company emits an extreme dividend of 50$ per share. The first shareholder choses cash andthe second one stocks. Now, the first one ends up with 50$ in cash an 1/3 of a company worth 50$, while the second shareholder ends up owning 2/3 of the firm, which is worth only 33$.
- mapleoin 10y ago
  You're missing one important event. In the moment that the dividends are issued (regardless of whether they are stock or cash) a part of the company's value transfers into those dividends. Your example cannot work because a company worth $100, cannot create new shares worth $100 ($50 per share). (It could theoretically distribute a cash dividend of $50 per share, but then the value of the outstanding shares would be $0). If it were to distribute say 50% per share. Then it would create two new shares (in addition to the existing two). This would mean the new value per share would be $25. So investor A has one share worth $25 and a cash dividend of $25 (he owns 1/4 of the company) Investor B has one share worth $25 and one (dividend) share worth $25 (in total 1/2 of the company).
  - apoverton 10y ago
    This is also an example of a repeated game, so over time if they maintained their strategies, investor B would own the whole company. Also depending on how the company operates, there is another element of game theory because the controlling shareholder could elect to cancel all future dividends. if you're the newly minted majority shareholder, it's probably in your favor to do this immediately. In that case, the Nash equilibrium seems to be both parties choosing the stock dividend (and effectively getting nothing). While the 2 shareholder example is an oversimplification in this example, after enough plays of the game (i.e. dividends) a large shareholder could take control of the company if the other shareholders always choose cash.

Scirra_Tom 10y ago

If the company is doing badly, rational actors will take cash which could hurt the company more at a difficult time. If this has not been accounted/planned for, it could hurt the company.

cousin_it 10y ago

Yes, stock dividends are effectively the same as stock splits, and both should be no-ops (apart from obscure legal differences). But I don't see the game theory angle. Choosing between cash and stock dividend is equivalent to choosing between stock buyback and no-op. In both cases, I don't see why your choice should depend on what other shareholders choose.

nabla9 10y ago
No they are not. Stock buybacks are effectively same as dividends. If company buys stocks from the market , it increases the value for the shareholders. https://en.wikipedia.org/wiki/Share_repurchase https://en.wikipedia.org/wiki/Share_repurchase
- deleted 10y ago
  [deleted]
- kgwgk 10y ago
  What do stock buybacks have to do with the distinction between stock "dividends" and cash dividends?
- nappy-doo 10y ago
  Not quite. Buybacks aren't taxed the same as dividends (in the US). As such, they should be worth more than dividends to the shareholder: (all other things being equal, your ownership stake increases from the buyback).

golergka 10y ago

I don't know much about this, but it seems strange. When company issues new shares, it makes existing share owners percentage of the company go down — so shouldn't they have control on when such an operation takes place?

kgwgk 10y ago
In this case the new shares are distributed to the existing shareholders, so they won't be diluted unless they want (and given that some will opt for the cash, those who don't will end up owning a larger percentage of the company).

antihero 10y ago

Isn't the income from selling any shares also taxed, though?

ojbrien 10y ago
Yeah but as capital gains I believe, whereas a cash dividend is taxed as income (Income is taxed at a much higher rate than capital gains)
- harryh 10y ago
  If you have held the stock long enough then dividends can be taxes at the cap gains rate. This is what a "qualified" dividend is. https://en.wikipedia.org/wiki/Qualified_dividend https://en.wikipedia.org/wiki/Qualified_dividend

dsjoerg 10y ago

There is no game theory here. The value of each person's decision is not affected by the decisions of others. It's important to remember that the company's shares are traded on a public market. The shares distributed by the company are valuable and can be sold for the same amount of money as the dividend you could have received. The key fact that the article ignores is that the shareholders collectively own the company. So if they all decline the dividend, they are effectively electing for the company they own to hold the cash (that they own by owning the company).

lanevorockz 10y ago
The shares are basically the a piece of the company. By issuing new shares it automatically depreciates the value of each share, so the company is worth the same but you own a smaller share of the company. You can end up in a grey area between two situations. 1. Everyone takes cash and you get the expected share price 2. Everyone takes shares and the value expected is halved
- ghshephard 10y ago
  Issuing dividends also depreciates the value of each share as well. (By exactly the total amount of the dividend / total number of shares.)
  - lanevorockz 10y ago
    I missed that, financials are the same so they should amount for essentially the same value. Still the dynamics of both are different and usually depreciation of the dividends is factored out on the price of the stock. I wonder if they are pricing the stock just before dividend and if that's fair.
ghshephard 10y ago
What the author ignored, is that when dividends are issued, the value of stock (almost) always goes down by exactly the value of the dividend on the ex-dividend date.

blue1 10y ago

That's called a scrip dividend, by the way.

kgwgk 10y ago
That's the name in Europe, I think. The tax implications vary by country and there are a number of ways that companies can do it. For example, a company can give the option of getting cash while avoiding any actual outflow by giving rights to all the shareholders and selling those rights on behalf of the shareholders who want cash to give them a cash payment instead of the new stocks.

alex95 10y ago

Why does every other title have to have an "or" nowadays? These two are completely unrelated in terms of titles, so why do it?

kriro 10y ago

Possibly very naive question but why are dividends paid at all if it's essentially a noop? If they are paid in cash the stock I own is worth less by the same amount and if they are paid in stocks my initial stock is diluted by the same amount. Do voting and non-voting shares typically receive the same amount of dividends? The only differences I can see between cash and stock dividends is 1) For cash dividends I pay taxes now, for stock I typically pay upon the sale of said stock.* 2) A company issuing cash dividends has less liquid cash in the bank (also applies to the shareholders who get liquid cash). *both are taxed as capital gains here, might be different tax wise in other countries which could complicate things

AznHisoka 10y ago
Dividend is cold hard cash in your bank account. Stocks is not cash and needs to be liquified. Your million dollar portfolio could theoretically be worth $0 any day.
- kriro 10y ago
  I a reasonably liquid market I could just sell my stocks to get cash. If I don't trust the company to grow I should take the cash dividend but probably also sell all my stock in it (and invest it elsewhere).
harryh 10y ago
Companies, in general, pay dividends when they have cash that they do not have a productive use for. It doesn't make sense for a company to keep too much cash invested in a low return investment (like a bank account or short term treasuries) so in this case the company gives it back to the owners so that they can use the money more productively. Interestingly enough this generalization is contradicted by several large US tech companies who have accumulated unprecedented cash hordes. It's interesting to think about why this might be happening.
- kgwgk 10y ago
  It's in part because they cannot distribute that money until it's legally owned by the US parent company and that requires paying some additional taxes.

rskar 10y ago

"...Boskalis can pay a dividend, without actually paying a dividend." That is so very wrong. While the overall picture seems the same, the tangible difference is in what each investor actually has at the end of each transaction: Option 1: Dividends as cash, which means cash leaving the company. Money is transferred from one entity (the company) to another (a group of shareholders). While shareholders are regarded as owners of the company, the nature of their ownership doesn't always work quite the same as say ownership of one's personal effects. Being a shareholder mostly means having certain rights regarding how one gets part of the company's profits and the right to vote on how the company is controlled. Payout of dividends means an immediate reduction of capital for the company, and an increase of income to the shareholders. So at the end the shareholders have the same number of shares and a certain amount of cash. The market value of their shares may drop at first as a reflection of the dividend payments (because technically the company's book value does drop immediately). But let's be honest here, the whole point of shares is the profit potential, so the pricing of shares needn't be in strict alignment with the book value. Option 2: Dividends as new shares means the company holds on to capital. At the end, shareholders get more shares, which may suit them just fine if they're not in any situation that compels them to liquidate. Extra shares means having more to sell. Let's not hyper-focus on book value, since a share price needn't be constrained by that. If there's a good chance that the price per share will rise over time, then getting shares may be more profitable to an investor than getting immediate cash. As the old adage goes, you pays your money you takes your choice. Also, it takes money to make money. But let's not get too hung-up on book value vs. share price, or on whether money truly is a "store of value". There's an awful lot of human desires and human efforts at play here, and in the end it's that interplay of desires and efforts (i.e. what efforts must one undertake to satisfy one's own temporal desires) that brings value to anything.

mywittyname 10y ago
Right, these moves are not the same. To be the equivalent, the company would need to offer to buy the newly created shares from the investor at a price equal to the value of the dividend (even if that is a premium over market value). Over a long period of time, Option 2 results in a company with huge cash reserves that aren't generating extra returns (see: apple). This could lead to a situation where the market value of the stock becomes much less than its intrinsic value and a hedge fund (or similar) could acquire a significant holding in the company and compel the board to accept a complete buyout at a discount. Forcing shareholders to accept 20-30% less and leaving them to sue for the difference. Dividends are the end-game for every company. It doesn't matter if they distribute cash or buy back stock -- eventually they need to put money in the hands of investors.