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How could a company break its stock up into a 'dividend stock' and a 'capital appreciation' stock? Valuing the 'dividend stock' would be pretty easy, but what
by CountSessine 9y ago
How could a company break its stock up into a 'dividend stock' and a 'capital appreciation' stock?
Valuing the 'dividend stock' would be pretty easy, but what about the 'capital appreciation' stock? What value does that take on? I'm assuming that voting rights would still be split between the two - otherwise the company's board wouldn't concern itself with dividend issues.
But really - without dividends or the future promise of dividends, how would anyone value the 'capital appreciation' stock?
- ksherlock 9y agosome companies have normal stock and preferred stock. Preferred stock acts more like a bond - no voting rights, higher priority in the case of bankruptcy, consistently pays a certain amount and the price doesn't move much. There are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued...
- CountSessine 9y agoThere are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued... There are tons of stocks that don't pay dividends, but investors value them based on the promise of future earnings and future dividends. Snap doesn't pay dividends, but either it will someday or they'll get bought up. The cornerstone assumption behind stock valuation is self-interest in ownership - either dividends based on earnings or the promise of future earnings and dividends. Or getting bought up, which is still sort of a dividend - just a dividend for the buying company. Given that GM isn't going to get bought up any time soon, what self-interest is an investor in GM satisfying by buying shares that are guaranteed to never issue dividends? Share price increases? When does that stop? Is there an upper limit? What is it based on and how do you know we haven't hit it now? How is this not a tulip-market?
- mhermher 9y agoVoting rights have value. If some entity wants to gain control of the company, then they would need to buy voting shares.
- mhermher 9y agoWithout dividends, you could value it by its voting right. Stocks with neither dividends nor voting rights I don't understand at all, its only value is in speculation. Those cases just seem like gambling more than anything to me.
- an_account 9y agoGoogle has both "goog" stock and "googl" stock. One of which has essentially no voting rights and both have no dividends. The one with voting rights has slightly higher price, but they track each other pretty closely.
- CountSessine 9y agoStocks with no voting rights and no dividends are strange. It's like fiat-currency without the fiat; you're buying tulips and hoping you're not left holding the bag when prices plateau. Microsoft stock was flat for years under Steve Balmer. Microsoft had become Con-Edison - a utility that would reliably make money year after year but wasn't going to see growth in earnings. Shareholders rightly demanded dividends if the company couldn't improve its earnings growth. Thinking ahead to that, what's going to happen to everyone who owns "goog" when there's a sustained period without earnings growth at Google?
- markvdb 9y agoNo answer to your question, but... I would totally buy a capital appreciation stock, depending on how the fiscal details are worked out. If I buy US stocks, I get taxed 15% US witholding tax on the dividends, then 30% Belgian withholding tax, leaving me with 59.5% net after dividend taxation. But if the share appreciates, I pay zero capital gains tax when I sell. OK, I get that this was not the point of the operation, but it would definitely be a side benefit. Lots of Belgians buying Irish registered ETFs for similar fiscal reasons...
- CountSessine 9y agoActually, this is brilliant. It's a very different sort of investor self-interest, though. I hadn't thought of tax-planning at all.