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> I've often wondered why we allow companies, particularly publicly traded ones, to sit on an ever-growing war chest rather than paying out their profits to inv

> I've often wondered why we allow companies, particularly publicly traded ones, to sit on an ever-growing war chest rather than paying out their profits to investors as dividends. Because we believe that a large, successful company has investment options available to it that are not available to Joe Average, and can achieve a better return on that capital for its investors than they would be able to achieve themselves if it were returned immediately as a dividend. If you disagree with that analysis, you can easily vote with your investment dollars.

Silhouette 15y ago
I appreciate that large companies do have other options today, for better or worse. What I'm asking is whether we should allow them to exercise those options. Doing so, as you hinted in your own comment, means that large companies have to become skilled investors, and this will inevitably become a significant or even the dominant part of their existence instead of actually making useful things or providing useful services. As we've observed all too recently, not all of those extra investment options are quite as effective as they were supposed to be. Moreover, any investment option that is legitimate could probably offered to (now richer) individual investors if large companies were not allowed to use it. So I'm not sure where the big downside is of restoring the natural links between companies that do socially useful things like make good products, companies that make profits, and companies that are attractive to outside investors when they need extra funding to grow faster. Alternatively, if these companies are going to be allowed to invest their profits on behalf of their own shareholders, perhaps it's about time they were regulated as financial institutions. If nothing else, shareholders should be protected from senior management who are erroneously convinced that they can do a better job gambling^Winvesting their shareholders' profits than the shareholders themselves can do of choosing where to spend a legitimate return on their investment.
- stephencanon 15y ago
  I was thinking more in terms of investments related to the company's business (e.g.: Apple pre-paying billions of dollars to lock up massive amounts of flash storage or to fund new factories for suppliers) that often have a much higher ROI than any investment you or I might reasonably make in any investment available to us. Large companies carrying trading/gambling departments not related to the rest of their business is, as you say, probably not a good thing.
  - Silhouette 15y ago
    Sure, if the money is being spent on things like stock and operating expenses that are a normal part of the business, I have no problem with that. If it's being done on an industrial scale and there are economies that go with that, it makes perfect sense. I'm just not convinced that (for example) certain large tech companies -- particularly those that are in the software or services businesses rather than in manufacturing -- need reserves on the scale they are holding for the kinds of purposes we're talking about here, which leads me to ask why the rest isn't being paid out in dividends to shareholders.
eli_gottlieb 15y ago
It's not about whether we force companies to pay out all their profits as dividends. It's about whether a publicly-traded stock should carry any dividend, or no dividend. If it's no dividend, then the stock is only valuable as a flip-asset. If it's got any dividend at all, then the stock has real value as an income stream.

Silhouette 15y ago

I appreciate that large companies do have other options today, for better or worse. What I'm asking is whether we should allow them to exercise those options. Doing so, as you hinted in your own comment, means that large companies have to become skilled investors, and this will inevitably become a significant or even the dominant part of their existence instead of actually making useful things or providing useful services. As we've observed all too recently, not all of those extra investment options are quite as effective as they were supposed to be. Moreover, any investment option that is legitimate could probably offered to (now richer) individual investors if large companies were not allowed to use it. So I'm not sure where the big downside is of restoring the natural links between companies that do socially useful things like make good products, companies that make profits, and companies that are attractive to outside investors when they need extra funding to grow faster. Alternatively, if these companies are going to be allowed to invest their profits on behalf of their own shareholders, perhaps it's about time they were regulated as financial institutions. If nothing else, shareholders should be protected from senior management who are erroneously convinced that they can do a better job gambling^Winvesting their shareholders' profits than the shareholders themselves can do of choosing where to spend a legitimate return on their investment.

stephencanon 15y ago
I was thinking more in terms of investments related to the company's business (e.g.: Apple pre-paying billions of dollars to lock up massive amounts of flash storage or to fund new factories for suppliers) that often have a much higher ROI than any investment you or I might reasonably make in any investment available to us. Large companies carrying trading/gambling departments not related to the rest of their business is, as you say, probably not a good thing.
- Silhouette 15y ago
  Sure, if the money is being spent on things like stock and operating expenses that are a normal part of the business, I have no problem with that. If it's being done on an industrial scale and there are economies that go with that, it makes perfect sense. I'm just not convinced that (for example) certain large tech companies -- particularly those that are in the software or services businesses rather than in manufacturing -- need reserves on the scale they are holding for the kinds of purposes we're talking about here, which leads me to ask why the rest isn't being paid out in dividends to shareholders.

eli_gottlieb 15y ago

It's not about whether we force companies to pay out all their profits as dividends. It's about whether a publicly-traded stock should carry any dividend, or no dividend. If it's no dividend, then the stock is only valuable as a flip-asset. If it's got any dividend at all, then the stock has real value as an income stream.