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While this is fairly standard corporate finance framing, I don't think it's necessarily as true as it once was. If GE were to stop paying dividends and announce
by mikeyouse 7y ago
While this is fairly standard corporate finance framing, I don't think it's necessarily as true as it once was. If GE were to stop paying dividends and announce they were going to do buybacks funded by cheap debt, I doubt the market would more than shrug.
- three_seagrass 7y agoCancelling dividends and doing buybacks is different than cancelling dividends though. GE is a blue chip stock so the market will definitely notice.
- mikeyouse 7y agoIt is different, but otherwise GE would just what, pile up the money? Cancelling dividends is only a drag on a stock if it's a sign that they can't afford to pay them regularly. In a hypothetical scenario where GE decided 20 years ago to stop paying dividends (to enable a better apples:apples comparison of stock price over time), they would have been just as profitable for that time period but today their balance sheet would have a ton more cash. I'm just calling into doubt whether that would have negatively impacted their share price or outlook at all. It's all academic anyway, I think we're saying the same thing.