Here is the link to the paper referenced in a paywall article I read. Cliff’s Notes: companies that pay dividends are less likely to commit financial reporting fraud, roughly by 30%. Not a guarantee but helps stack the odds in your favor. Kind of like having a running back rush for 100+ yards doesn’t guarantee a win buts stacks the odds towards it.
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Of course. That’s why they decided to stop paying dividends and made up the story about putting profits back into the company thus increasing stock prices concomitantly, then paying for favorable tax legislation to dangle the carrot.
Every businessperson knows at any given time there is only so much money your business can absorb to expand, so the story about no-dividends is good because we’re growing the business was just a 3-card-Monty.
If you’re going to pay the shareholders their cut of profits you have to keep better track of things and keep your hands where they can see them
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You think Berkshire Hathaway is just a 3 card Monty?
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Knee jerk response. You know that’s not what I’m talking about and I stated so in the post.
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Somebody explain to me what I said to cause that response by fcorelli. Feeling stupid at the moment.
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Well you’re not stupid. We’ve rec’ed each other’s posts before so how can we be stupid?
Yes, I know about Warren. He is not typical. From Day#1 till about the 1980’s./90’s maybe, corporations paid dividends. The shareholders expected to be PAID something for their money and faith and perseverance. They didn’t invest on a leap of faith, or a wing and a prayer. “Pay me.” That’s why. Without something up front, on the barrel-head why would people want to risk their money on you? That can all change (crash) and did many times with regularity. So, in the mean time while you’re making money pay me some of it. (taking a plunge on a new or risky idea is a different matter. Easy come/easy go or maybe you hit a home run)
Businesses stopped paying dividends and made cap gains tax favorable in order to basically stop paying the shareholders. And made up that story about growing the business bigger, faster, better. That’s what some of the profits are for. The rest they were supposed to pay out as the shareholder’s share.
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Devil’s advocate: You’re more inclined to do whatever it takes to maintain or increase the dividend. Including cheating. Companies that cut dividends usually are punished by shareholders. I won’t say the study is wrong. If it was a properly-run study, then it is what it is. But I find your argument as to why less than convincing.
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As a shareholder, I avoid dividends. I don’t want a quarterly taxable payment if I’m not going to be spending the money.
Much better to keep it invested without the taxation.
intercst
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Warren Buffett is not in the business of giving money back to shareholders, it dilutes his investments. He likes book value and dividends lower book value. For a similar reason he does not like stock options either.
Liking dividends, like everything else, depends on the investors’ preferences. As a “Non resident alien” I would have to pay a 15% withholding tax. I pay no tax on capital gains on covered calls.
The Captain
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The usual transparent, and knee jerking, changing of the subject. I do not for one second believe anyone here is actually illiterate or lacking in mental acuity. This is why I don’t engage in protracted internet discussions. It’s baked in the cake
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I don’t think this is entirely accurate. The tax treatment of qualified dividends (the ones we mostly talk about and see) is very similar to the treatment of long-term capital gains.
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Yes, it’s very similar except that the dividend comes every quarter whether you want it or not, but you control the timing of the capital gains on a sale.
I’m paying thousands of dollars in extra IRMMA this year because one of the companies I hold paid a big one-time dividend in 4 Q 2024.
intercst
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20 characters }}}}}}}}}}
You’re starting to get cranky in your old age.
intercst
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The point of the article was NOT about whether dividends were good or bad from a tax standpoint or stock valuation standpoint. The point was, it is harder for accounting fraud to occur (which would really destroy company value) if a company is paying and/or growing its dividend. Again, not a guarantee but stacks the odds on your favor.
Then add that the average return of dividend paying/growing stocks does better (as a whole) than non dividend paying stocks, and it further stacks the odds on your favor.
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But is that additional protection from “accounting fraud” worth the untimely taxation?
One of the biggest “frauds” I see is companies borrowing money to maintain a healthy dividend.
intercst
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Or
Former GE CEO Jack Welch specialized in using legal but creative accounting to beat forecasts.
Buffett made clear his disdain for so-called creative accounting, branding it “disgusting” and “one of the shames of capitalism” in his yearly missive.
The famed investor and Berkshire Hathaway CEO has previously bemoaned the rise of this type of financial fiddling.
Welch went a step further. He made it his mission to beat Wall Street’s forecasts, and deliver slow, steady growth that would secure a higher valuation for GE stock. He oversaw 40 quarters, or 10 years, of uninterrupted earnings growth during the 1980s and early 1990s.
The ace in Welch’s hand was GE Capital. The conglomerate’s financing arm owned around $200 billion of assets, ranging from commercial buildings and leased jets to stock warrants, that it could sell at short notice to offset weakness elsewhere in the company.
The utilities titan also adjusted the expected rate of return from its pension portfolio, and tweaked the values of assets it acquired. In a similar vein, it once pulled out $2 billion from the reserves of its insurance subsidiary to avoid reporting an earnings decline
The goal was to smooth GE’s earnings by offsetting any big quarterly gains that would be hard to top in the future, and making up for any significant losses by liquidating assets, tweaking valuations, and moving money around.
However, Welch rejected claims that he “managed earnings,” framing his accounting tweaks as simply sensible.
Welch’s obsession with GE hitting its numbers each quarter spurred him to ruthlessly cut costs and fire workers as needed.
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To each their own.
I am currently living off of my dividends. Stock market up, stock market down, get the same “mail box money” check each quarter. Nothing untimely about the taxes. Sure you can live off your capital gains, but say you were needing monies right after the big tariff announcement, or the start of the Great Recession, or Dot.com bubble, insert favorite financial earthquake here, and you’re selling more shares to get the same money. Meanwhile, my dividends have stayed the same. And, qualified dividends and cap gains are taxed at the same rate, so no differences in what is due at the end of the day.
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JLC,
There are many ways to get “smoothed income”.
mailbox money is:
1/4ly sales of 1% of holding to get 4% annually
or
Annuitization of portfolio - sell all assets and purchase annuity
or
Dividends, interest and other royalty payments
or
CD/Bond/debenture maturity
or
Sold fractional interest in long term illiquid holdings (reverse mortgage on auto, art, or real estate)
or
line of credit draws against equity portfolio
or..
Prescribed benefits as a member of Harugari
So many possibilities. Dividend tax structures are not favorable to non US persons in certain locales.
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As they say, the devil is in the details. There are some non-USA dividend companies that I’m interested in BUT some countries withhold taxes automatically at dividend distribution. Majority of the time, for me to even begin to get those taxes back (usually in the form of a tax credit) the stock has to be held in a taxable account. No deal if in an IRA or other tax deferred account. So on the basis of the KISS principle (Keep It Simple Stupid), I usually avoid foreign companies.
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