(23-06-2015, 02:31 PM)CityFarmer Wrote: [ -> ] (23-06-2015, 01:30 PM)specuvestor Wrote: [ -> ]It is not illogical. It makes perfect sense because cash is hand in worth two in others' bush 
Using the same example, say both management changed on the 10th year. Company A continue to pay out while B retains. Then suddenly you realise IPT coming for both companies. Salary soaring. Cash unaccounted for. Which company has more risk... remembering that A actually has much less cash than B to play punk.
When we value both company A and B, it is illogical to value B less than A, because asset in A is less than B, while business qualities remain the same for both. The worst case, "extra" retained earning in B, worth nothing, and both A and B will have similar valuation. In practice, the "extra" retained earning should not be discounted to zero, but in between zero and full value.
I do understand the emotional factor for dividend payout, but value investing advocates elimination of emotional factor in valuation, right?
What do you think the above argument?
I think you are looking at different timeline
I am saying for an investor investing at year 1, TOTAL return for Company A market cap with cash payout will be higher than Company B with asset and cash withheld, say after 10 years for exaggerated illustration.
You are actually saying that market cap of B should be higher than A at year 10, which is possible. But the TOTAL return in the 10 years will remain the same that A will be better than B.
In the worst case like you say the cash is worth nothing, investors in A already got some payoffs, thats why A will be trading at premium to B even if at year 10 both company cash are worth "nothing".
I did not say the cash is discounted to zero, but that it should be discounted. I said "market is giving appropriate discount to cash, NOT to the cash generating asset", in fact the ex-cash analysis is always ascribing full value to the cash and see what is the asset value. IMHO it should be the other way round:
getting a fair valuation for the assets and then see what is the market discount for the cash Around 10-20% discount is about right.
Cashflow is very important and the shareholders' cashflow is different from the business' cashflow. We are skeptical when a business doesn't generate cash, yet ok for a stock doesn't generate cash for the investor. They are the same principle which is why the structural layer to make sure benefits pass on is important. If cashflow is not important then Greece just need to get their debt changed to perpetual debt and voila problem solved
Dividend payment is not an "emotional" thing
It actually signals to the market the cash generative ability vs paper PnL and the management attitude. That's why Ben Graham thinks AGM should approve retaining earnings rather than dividend payments.
OPMI should not have like Hans Solo say: "illusions of granduer" about the cash unless one has access or control. On the other end of the spectrum PE fund know this very well and pushed it to the other extreme which is why they strip a company of cash and load with debt when they list/ relist. The total value they get by structuring as such is much greater than if they list it as it is. They have control.
If your basis is B should be better than A then your focus will be on those "deep value" stocks (quite a few being discussed in VB) that will either turnaround or change management one day, when actually A runs the business working capital and structure tighter.
By the way SSG is doing not too bad on dividends but share price would be higher if it pays more and it can. Starhub on the other hand can't sustain.
