When invest in stock market, why are people so hard up over dividends?

[Stocker]

Hi wahkao , what is DSO ?

If I am not wrong it means Day Sales Outstanding. A simple example: A company with a monthly sales revenue of $1M and AR of $2M means it has two months of sales outstanding, so its DSO is 60 days.

If monthly rev is $1m , isn't AR should be $12m ?

Is there a miscommunication?
Ben's AR = Accounts receivable
Stocker's AR = Annual revenue

Maybe I am not clear in my example. AR = Accounts receivable, ie, amount outstanding at end of a financial period. So back to the same example of the company having a monthly sales of $1M. At the end of its financial year, it has $2M of accounts receivable. Using the formula of DSO = AR/Revenue in period X Days in period, ie $2M/$12M X 365 days, its DSO = 60 days.

Hope it is clear now.

Many thanks Ben for the clarification.

[wahkao]

Opinion on share buybacks? and dividends?

The equation is simple, but practice doesn’t always follow logic. Assuming you’ve been honest with shareholders [in communicating enough information so they can estimate intrinsic value], then if your stock is far below intrinsic value, buying it back adds a lot of value. The Washington Post did this and Teledyne bought back 90% of its stock over time.

Today, stock buybacks are popular. The underlying rationale – not the professed rationale – is that people hope the stock price won’t go down. But often this doesn’t make sense for shareholders. If the stock is underpriced, buy it back with excess cash; if it’s overvalued, don’t buy a single share.

If we wanted to return cash to shareholders, we’d go to them and say, “Our stock is cheap and we’re going to return cash to you by buying it back.”

In terms of dividends, you get into an expectational problem. Most public companies don’t bounce around their dividend from year to year (although this is very common in private companies and Berkshire subsidiaries) because investors come to rely on it. So once you establish a dividend policy at a public company, think a long time before changing it.

[CM: The total amount paid out in dividends is roughly equal to the amount lost in trading and investment advice, so net dividends to shareholders are zero. This is a very peculiar way to run a republic.]

In a Fortune article I published in 1999 [Mr. Buffett on the Stock Market, 11/99], the frictional costs are equal to the total amount paid out in dividends.

Companies should be paying out dividends. Take See’s Candies: we haven’t figured out a way to grow it, so we can’t reinvest, so something approaching a 100% payout [of profits] would make sense [were it a public company]. Most managements want to ensure regularity [of dividends], so they go with a conservative level [below 100%].

We think about this at Berkshire. If we didn’t think we could put it [all of our excess cash] to work, then we’d pay it out. But we expect – and this is reasonable, I think – that we will have the chance to put it to work.

[If we decided to return cash to shareholders and] if our stock wasn’t underpriced, then we’d probably pay out a dividend – but don’t count on it anytime soon.

Source: BRK Annual Meeting 2004 Tilson Notes
URL:
Time: 2004

[smallcaps]

Opinion on share buybacks? and dividends?

The equation is simple, but practice doesn’t always follow logic. Assuming you’ve been honest with shareholders [in communicating enough information so they can estimate intrinsic value], then if your stock is far below intrinsic value, buying it back adds a lot of value. The Washington Post did this and Teledyne bought back 90% of its stock over time.

Today, stock buybacks are popular. The underlying rationale – not the professed rationale – is that people hope the stock price won’t go down. But often this doesn’t make sense for shareholders. If the stock is underpriced, buy it back with excess cash; if it’s overvalued, don’t buy a single share.

If we wanted to return cash to shareholders, we’d go to them and say, “Our stock is cheap and we’re going to return cash to you by buying it back.”

In terms of dividends, you get into an expectational problem. Most public companies don’t bounce around their dividend from year to year (although this is very common in private companies and Berkshire subsidiaries) because investors come to rely on it. So once you establish a dividend policy at a public company, think a long time before changing it.

[CM: The total amount paid out in dividends is roughly equal to the amount lost in trading and investment advice, so net dividends to shareholders are zero. This is a very peculiar way to run a republic.]

In a Fortune article I published in 1999 [Mr. Buffett on the Stock Market, 11/99], the frictional costs are equal to the total amount paid out in dividends.

Companies should be paying out dividends. Take See’s Candies: we haven’t figured out a way to grow it, so we can’t reinvest, so something approaching a 100% payout [of profits] would make sense [were it a public company]. Most managements want to ensure regularity [of dividends], so they go with a conservative level [below 100%].

We think about this at Berkshire. If we didn’t think we could put it [all of our excess cash] to work, then we’d pay it out. But we expect – and this is reasonable, I think – that we will have the chance to put it to work.

[If we decided to return cash to shareholders and] if our stock wasn’t underpriced, then we’d probably pay out a dividend – but don’t count on it anytime soon.

Source: BRK Annual Meeting 2004 Tilson Notes
URL:
Time: 2004

IMO, share buybacks should be executed at prices near to intrinsic value so that shareholders are not shortchanged. Otherwise should juz return excess cash as special dividends.

[Temperament]

Opinion on share buybacks? and dividends?

The equation is simple, but practice doesn’t always follow logic. Assuming you’ve been honest with shareholders [in communicating enough information so they can estimate intrinsic value], then if your stock is far below intrinsic value, buying it back adds a lot of value. The Washington Post did this and Teledyne bought back 90% of its stock over time.

Today, stock buybacks are popular. The underlying rationale – not the professed rationale – is that people hope the stock price won’t go down. But often this doesn’t make sense for shareholders. If the stock is underpriced, buy it back with excess cash; if it’s overvalued, don’t buy a single share.

If we wanted to return cash to shareholders, we’d go to them and say, “Our stock is cheap and we’re going to return cash to you by buying it back.”

In terms of dividends, you get into an expectational problem. Most public companies don’t bounce around their dividend from year to year (although this is very common in private companies and Berkshire subsidiaries) because investors come to rely on it. So once you establish a dividend policy at a public company, think a long time before changing it.

[CM: The total amount paid out in dividends is roughly equal to the amount lost in trading and investment advice, so net dividends to shareholders are zero. This is a very peculiar way to run a republic.]

In a Fortune article I published in 1999 [Mr. Buffett on the Stock Market, 11/99], the frictional costs are equal to the total amount paid out in dividends.

Companies should be paying out dividends. Take See’s Candies: we haven’t figured out a way to grow it, so we can’t reinvest, so something approaching a 100% payout [of profits] would make sense [were it a public company]. Most managements want to ensure regularity [of dividends], so they go with a conservative level [below 100%].

We think about this at Berkshire. If we didn’t think we could put it [all of our excess cash] to work, then we’d pay it out. But we expect – and this is reasonable, I think – that we will have the chance to put it to work.

[If we decided to return cash to shareholders and] if our stock wasn’t underpriced, then we’d probably pay out a dividend – but don’t count on it anytime soon.

Source: BRK Annual Meeting 2004 Tilson Notes
URL:
Time: 2004

IMO, share buybacks should be executed at prices near to intrinsic value so that shareholders are not shortchanged. Otherwise should juz return excess cash as special dividends.

i think unless your stock is "Berkshire Hathaway Inc.", it's better to have cash in your pocket as dividends. Even if the company has to borrow to pay you. But then borrow to pay you???

[corydorus]

Share buyback can be attempts to reward employees or boost management bonuses despite poorer performance with excuses and reasoning that is debatable. If they are doing a good job, the share price should take care of itself.

I will demand for dividends and performances translating to share price.

[wahkao]

Eratat Lifestyle are borrowing money at crazy interest rates of 12.5% EAR.

10 year risk free is at 2.5%. They are screwing up their capital structure with this bond commitment. Only desperate indebted companies would accept to such deals to delay their death

Worse, they have the cheek to give dividends. They are effectively borrowing at 12.5% to give dividend.

Now, trading halted because default on bond

So do not be fooled by dividends and use it as your first screen

[Image: okToQyv.png]

[arriyana]

Share buy backs are good in States but generally serve no purpose in Singapore because we don't have capital gain or dividend tax anyway. So there is honestly no substantial difference between share buy backs for shareholders.

However, share buy backs do provide a lot more opportunities for management to play with accounts. (i.e it is common for management to issue a lot of stock options for themselves and use earnings to purchase back shares and redeem the options with these treasury shares). So share buybacks are almost always bad in Singapore context.

[corydorus]

Obviously dividends are one key factor. Is NOT the ONLY FACTOR. We will be kidding ourselves to base our investment just on Dividends.
This is a Value investment forum. So i do expect most here will do some maths on financial and business reports though varies with different individual levels.

[Temperament]

http://www.nevermindthebuspass.com/

{Most people who invest in the stock market focus on price appreciation–that is, whether the share price goes up or down. But there is another way to make money from owning shares – through dividends. Shares that pay a dividend are called income shares. The dividend yield gives some insight as to how much income shareholders receive and whether the company pays a dividend at all. When evaluating shares, income investors look at dividend yield as one of their criteria

What is a dividend?

A dividend is a payment made to shareholders that allows them to earn returns on their investment aside from share price appreciation. Not all shares pay dividends. Yahoo, Google and Apple, for example, have never paid a dividend. Some companies have decided it is more beneficial to investors in the long run to reinvest profits back into the company. Dividends are usually paid twice yearly. They are expressed in per-share amounts

What is dividend yield?

Dividend yield tells an investor how much shareholders receive in cash payout as compared with the share price. It is expressed in terms of a percentage. This number allows shareholders to look at shares and decide which ones will produce significant income. The dividend yield is calculated as the amount of dividend (annualised) divided by the share price. Since dividends on common stocks are not guaranteed, the dividend yield calculation uses historical dividends in the numerator

For example, if IBM pays its shareholders a half yearly dividend of 80p per share, this equates to £1.60 annual dividend. If the current share price for IBM shares is £88, then the dividend yield would be 1.9 %

But always remember that the effective yield of any share you buy is based on your initial investment, not the current market price of the share. In the example above, if you bought the share for £64, the yield on your initial investment is actually 2.5% – plus you would have a capital gain of 37.5% on your investment!

Why is it important?

On its own the dividend yield tells you very little. It’s a raw figure that needs interpretation. Experienced investors use dividend yield in many ways when constructing their portfolio:

As a benchmark – Investors use the dividend yield to compare a stock to the overall stock market or to its industry peers. Significant differences can indicate buying or selling opportunities

As a sign of the stability of a company – ordinarily only profitable companies pay out dividends. Therefore, investors often view companies that have paid out significant dividends for an extended period of time as ‘safer’ investments. Thus, should events occur which may be detrimental to the share price, the allure of the dividend combined with the stability of the company can support the price somewhat. Newer companies are less likely to pay dividends because they don’t have a long record of profits and they are more likely to use their profits to pay for further growth of the company

As an predictor of future share price – Low dividend yield can indicate high demand from investors. High demand drives up the share’s price relative to the dividend. Conversely high dividend can indicate a share with low demand from investors, which leads to a lower share price

As an predictor of future dividend payments - if a company has a low yield compared to others in the same industry, this could mean the company’s stock is over-valued because investors are confident of future growth. Alternatively, it can suggest that the company can’t afford to pay the expected dividends. If a company has a high yield in comparison to others in the same sector, it could suggest imminent dividend cuts

As a predictor of risk – Investments that offer higher levels of returns usually come with higher degrees of risk. Many companies sporting very high dividend yields may be linked to the value of a commodity. If the underlying value of the commodity were to experience a steep decline, even if only for a short period during a half year, the dividend amount for that half year may be reduced significantly or entirely

Summary

Dividend yield indicates the ability to generate dividend income as a percent of the investment. It is calculated as the common dividend per share divided by the market price per share

It’s a particularly important valuation measure for investors seeking regular income. As we get older and nearer, or in, retirement, we tend to gravitate more towards income shares. Therefore we like to see a higher dividend yield. Typically higher dividend yields are associated with more stable and mature companies. In the absence of any capital gains, the dividend yield is the return on investment for a share

When it comes to investing, nothing will pay off more than educating yourself. Make sure you do the necessary research and analysis before making any investment decisions}

Unquote:-
Is dividend payment very important to you?
i think to most retail investors yes.
Especially Old man like me.

For some people, they are looking for 5 to 10 to 30 baggers, then it's a different perspective of investing.

[cfa]

Not all investors can invest without dividend which is the source of income.
Which profitable blue chip doesn't pay dividend ?