6 ms·

If a company can still afford to pay out dividends it probably isn't really in need of aid.

by ucosty 6y ago

elric 6y ago
It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.
- Ididntdothis 6y ago
  Is the promise of dividends binding? I don’t think so.
  - brewdad 6y ago
    To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price. C'est la vie.
    - nradov 6y ago
      Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market. Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
  - anonymousDan 6y ago
    It's not. The stock price will likely take a hit, but such is life.
- benburleson 6y ago
  So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.
  - chrisseaton 6y ago
    > lining investor pockets Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
    - elric 6y ago
      Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me. Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
    - calcifer 6y ago
      I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
      - 1123581321 6y ago
        I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
      - strictnein 6y ago
        A semi-common retirement setup is to buy relatively stable stocks that have good dividends and supply you with a 4-6% annual return.
- KillerDiller 6y ago
  It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place. Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.
chrisseaton 6y ago
Paying a dividend is paying a person. It's like you're saying that 'as long as they can afford to keep paying employees' they don't need aid. Would you rather they stopped paying people but didn't take aid? The whole point of the aid is so they can keep going and keep paying people.
- throwaway2048 6y ago
  Return from investment is nothing like salary.
  - chrisseaton 6y ago
    Many workers are paid a majority of their income in the form of stock from the company they work for.
    - Agathos 6y ago
      Suing your employer for wage theft because 1. They are still paying your salary, and 2. They are still granting you stock, but 3. They have suspended dividends on the shares you were granted seems like a reach. I'd definitely be interested in reading about it if someone actually tries it, though!
      - chrisseaton 6y ago
        Not sure who you're replying to. I didn't mention suing anyone or any idea of wage theft.
        Agathos 6y ago
        You suggested paying a dividend was similar to paying employees. When throwaway2048 challenged this, you brought up stock-based compensation. Surely if such compensation (including dividends) was an obligation in the same way as wages, then the employee would have some recourse when it's interrupted. In other words, they could sue.

If a company can still afford to pay out dividends it probably isn't really in need of aid.

by ucosty 6y ago

If a company can still afford to pay out dividends it probably isn't really in need of aid.

It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.

Ididntdothis 6y ago
Is the promise of dividends binding? I don’t think so.
- brewdad 6y ago
  To my knowledge, it isn't. There is a date of ownership where the dividend eligibility is determined and then it is paid out a few weeks later. I would imagine those payouts are binding but a planned dividend for June could easily be rescinded without legal penalty. However it is priced into the value of the stock. Slashing dividends will tank the stock price. C'est la vie.
  - nradov 6y ago
    Eliminating a planned future dividend by itself would have no effect on the stock price. What would affect the stock price is the management explanation that comes along with cancelling the dividend. If they say that profits will drop even more than analysts had expected, then that would tend to cause a share price decline as it would be new information to the market. Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
- anonymousDan 6y ago
  It's not. The stock price will likely take a hit, but such is life.
benburleson 6y ago
So, the business then has the choice to use last year's profits to keep the business afloat or pay investors. Seems like an easy choice unless your only motivation is lining investor pockets.
- chrisseaton 6y ago
  > lining investor pockets Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
  - elric 6y ago
    Indeed. The fallacy that all investors are all fat cats, swimming in money is pretty galling. When interest rates on savings accounts dropped, many regular folks took some of their savings and put into dividend paying companies. I'm sure most of them are aware that this is an investment and isn't without risk. I'm certainly not advocating for companies to pay out dividends no matter what. But the lack of nuance bothers me. Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
  - calcifer 6y ago
    I've never once met a person who would otherwise go hungry if they didn't get dividends, have you? What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
    - 1123581321 6y ago
      I know a bunch of retirees who live modestly off of dividend income, couldn’t afford a significant cut and couldn’t easily return to work. I don’t think you have broad enough experience to assume no one earns a few thousand a month from dividends and needs most of it to help pay bills.
    - strictnein 6y ago
      A semi-common retirement setup is to buy relatively stable stocks that have good dividends and supply you with a 4-6% annual return.
KillerDiller 6y ago
It's actually way simpler than that: the owners of a company facing crisis have the choice between providing it with additional liquidity or putting its future (and thus their stake) at risk. This is the one core manifestation of the risk they are bearing, and for which they allegedly deserve the dividends in the first place. Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.

chrisseaton 6y ago

Paying a dividend is paying a person. It's like you're saying that 'as long as they can afford to keep paying employees' they don't need aid. Would you rather they stopped paying people but didn't take aid? The whole point of the aid is so they can keep going and keep paying people.

throwaway2048 6y ago
Return from investment is nothing like salary.
- chrisseaton 6y ago
  Many workers are paid a majority of their income in the form of stock from the company they work for.
  - Agathos 6y ago
    Suing your employer for wage theft because 1. They are still paying your salary, and 2. They are still granting you stock, but 3. They have suspended dividends on the shares you were granted seems like a reach. I'd definitely be interested in reading about it if someone actually tries it, though!
    - chrisseaton 6y ago
      Not sure who you're replying to. I didn't mention suing anyone or any idea of wage theft.
      - Agathos 6y ago
        You suggested paying a dividend was similar to paying employees. When throwaway2048 challenged this, you brought up stock-based compensation. Surely if such compensation (including dividends) was an obligation in the same way as wages, then the employee would have some recourse when it's interrupted. In other words, they could sue.