So company benefits of the stock market
1) So companies can raise capital from their IPO or issuing new shares or diluting their stock later.
2) They can get better loan rates or loan more money based on their stocks market cap.
So when you buy a you are 99.9% of the time buying it from another individual or institution and there is no benefit to the company other than a possible increase in market cap?
Quote from: CharlieSheen on September 02, 2011, 10:29:38 AM
So company benefits of the stock market
1) So companies can raise capital from their IPO or issuing new shares or diluting their stock later.
2) They can get better loan rates or loan more money based on their stocks market cap.
So when you buy a you are 99.9% of the time buying it from another individual or institution and there is no benefit to the company other than a possible increase in market cap?
You are buying and selling ownership in the company. Your purchase or sale affects overall valuation of the company. This can effect the company positively or negatively. The number of shares offered is calculated based on advantages in trading volume and are at the companies discretion. The goal is to present an attractive earnings per share and maintain a healthy price per share.
Despite the wimp in the White House....the chumps running the House, and all the rich detached Senaturds, QE 3 will help.....print more money....re-inflate the country!
Inflation is one solution to our debt problem.
Quote from: CharlieSheen on September 02, 2011, 10:29:38 AM
So company benefits of the stock market
1) So companies can raise capital from their IPO or issuing new shares or diluting their stock later.
2) They can get better loan rates or loan more money based on their stocks market cap.
So when you buy a you are 99.9% of the time buying it from another individual or institution and there is no benefit to the company other than a possible increase in market cap?
This is my understanding. Even though the original sale of the stock is the primary source of capitalization for the company, they can increase their operating capital when the stock value rises. Most companies own some of their own stock and can sell it or borrow against it, to raise cash when they need to. Conversely they can buy more when the stock value is perceived as too low and build up reserves. Used effectively, a well run company can avoid re-issuing more stock, which dilutes the value of each share, unless they want to broaden their ownership thus reducing individual risk.
For instance, I bought Micro-soft when it was quite cheap back around 1990. The stock became popular which drove the price up and kept small investors out. Microsoft split the shares to lower their price and broaden their base. One of my shares became two but each share was worth less. The stock remained strong and grew back up to its original price quickly. We were all happy.
Quote from: CharlieSheen on September 02, 2011, 10:29:38 AM
So company benefits of the stock market
1) So companies can raise capital from their IPO or issuing new shares or diluting their stock later.
2) They can get better loan rates or loan more money based on their stocks market cap.
So when you buy a you are 99.9% of the time buying it from another individual or institution and there is no benefit to the company other than a possible increase in market cap?
Companies have to actually hold offering periods for their stock, and they have to report the amount sold and the initial price it will be sold at. Typically those offering periods are divided into several buying rounds based on level of investorship, so that the first level would be institutional folks (investment banks, funds of varying shape and size, and other favored public or private players); also at that point, employees -- usually the C level folks -- would get a chance to buy, too. Then in descending order varying levels of consumer and individual investors who are either low volume players or not preferred by the company would buy. Of course, the share price will have started to fluctuate with the first buying rounds, so even though Company A IPO's at 10$ a share, if you're participating in a later buying round you could easily get in at $15, 20$, etc.
And yes, 99.9% of the time -- if you're playing with your personal E-trade account, say -- you will be buying from another share owner.
Stocks are essentially a commodity, though, and function through supply/demand and scarcity principles. The fewer shares on offer, the (theoretically) higher the value will be. The more shares outstanding, the cheaper (in cost) they will be. This is why during these days of cheap borrowing capital for major corps you'll hear of them taking out super-cheap loans to buy back $Bs in shares -- essentially hoping that if fewer shares are outstanding then share value will increase. If the price goes up, they can theoretically issue more shares, pay back the cheapo loans and essentially arbitrage themselves into a much better capital position.
Look how smart we all are!
Yeah, well...smart would have been holding on to that Microsoft as it continued to split and being retired comfortably at the moment.
Quote from: AquaMan on September 02, 2011, 11:26:33 AM
This is my understanding. Even though the original sale of the stock is the primary source of capitalization for the company, they can increase their operating capital when the stock value rises. Most companies own some of their own stock and can sell it or borrow against it, to raise cash when they need to. Conversely they can buy more when the stock value is perceived as too low and build up reserves. Used effectively, a well run company can avoid re-issuing more stock, which dilutes the value of each share, unless they want to broaden their ownership thus reducing individual risk.
For instance, I bought Micro-soft when it was quite cheap back around 1990. The stock became popular which drove the price up and kept small investors out. Microsoft split the shares to lower their price and broaden their base. One of my shares became two but each share was worth less. The stock remained strong and grew back up to its original price quickly. We were all happy.
When they split stock it isn't the same as issuing more shares and diluting. Your 2 stocks worth $1 are now 4 stocks worth $1. If you have 1 company with 1 share of stock worth $100 and you decide you are going to issue another share that 1 share would then be worth $50. I believe that credit rating (which translates to ability to borrow) is changed by your companies market value compared to amount of debt.
I would argue that a compay would have a market value if the stock market didn't exist. However, the benefit to the stock market value is the ability of individuals to buy into companies with good ideas that might not be making any cash. At the same time, stock prices don't seem to match reality at all. Kind of weird.
Quote from: AquaMan on September 02, 2011, 11:26:33 AM
This is my understanding. Even though the original sale of the stock is the primary source of capitalization for the company, they can increase their operating capital when the stock value rises. Most companies own some of their own stock and can sell it or borrow against it, to raise cash when they need to. Conversely they can buy more when the stock value is perceived as too low and build up reserves. Used effectively, a well run company can avoid re-issuing more stock, which dilutes the value of each share, unless they want to broaden their ownership thus reducing individual risk.
For instance, I bought Micro-soft when it was quite cheap back around 1990. The stock became popular which drove the price up and kept small investors out. Microsoft split the shares to lower their price and broaden their base. One of my shares became two but each share was worth less. The stock remained strong and grew back up to its original price quickly. We were all happy.
That's accurate.
Quote from: CharlieSheen on September 02, 2011, 11:43:58 AM
When they split stock it isn't the same as issuing more shares and diluting. Your 2 stocks worth $1 are now 4 stocks worth $1. If you have 1 company with 1 share of stock worth $100 and you decide you are going to issue another share that 1 share would then be worth $50. I believe that credit rating (which translates to ability to borrow) is changed by your companies market value compared to amount of debt.
That is not accurate.
Quote from: CharlieSheen on September 02, 2011, 11:20:34 AM
Inflation is one solution to our debt problem.
You are obviously not on a fixed income.
Quote from: CharlieSheen on September 02, 2011, 11:47:01 AM
I would argue that a compay would have a market value if the stock market didn't exist. However, the benefit to the stock market value is the ability of individuals to buy into companies with good ideas that might not be making any cash. At the same time, stock prices don't seem to match reality at all. Kind of weird.
That's a strange comment. Of course a company has a market value with or without a stock market. Simply because some one may want to buy it or its assets or a part interest (share) of it. So yes its market value is directly determined by what someone would pay for all or any part of it. Just like my bicycle.
Stock prices merely reflect the ability of a company to make and share a profit within a set of rules that are prescribed by a marketplace. That market place in America is represented by organizations like the NYSE. They are like the bookies for sports. So, yes, stock prices do match reality. Sometimes it takes a fair amount of research to determine that. Even the companies that are not making cash may still be really good values for a buyer because of patents they may hold, research that is soon to come to fruition or a million other factors. And some companies that look good are really in deep trouble.
Kind of like dating isn't it?
Me thinks Mr. Sheen doesn't have much experience investing.
No offence Charles, we all need to start somewhere. I stated investing when I was 20. I wish I knew then what I know now!
Charlie, the game is a lot like Monopoly. Whenever you get the chance, buy and hold. Then when you get a good offer, sell it and buy more of something else. And, if you get a chance...read the rule book!
Quote from: AquaMan on September 02, 2011, 12:30:05 PM
That's a strange comment. Of course a company has a market value with or without a stock market. Simply because some one may want to buy it or its assets or a part interest (share) of it. So yes its market value is directly determined by what someone would pay for all or any part of it. Just like my bicycle.
Stock prices merely reflect the ability of a company to make and share a profit within a set of rules that are prescribed by a marketplace. That market place in America is represented by organizations like the NYSE. They are like the bookies for sports. So, yes, stock prices do match reality. Sometimes it takes a fair amount of research to determine that. Even the companies that are not making cash may still be really good values for a buyer because of patents they may hold, research that is soon to come to fruition or a million other factors. And some companies that look good are really in deep trouble.
Kind of like dating isn't it?
What I am saying is that the value of the company that would be created by creditors (which would be the new basis for how much a company was worth) would probably be a lot different than what the stock market says. Thats why I say it doesn't match "reality".
Quote from: Gaspar on September 02, 2011, 12:49:57 PM
Me thinks Mr. Sheen doesn't have much experience investing.
No offence Charles, we all need to start somewhere. I stated investing when I was 20. I wish I knew then what I know now!
I started when I was 18. My point for starting this thread was there are many people who try to attribute stock purchase with giving a company capital. Which it does to some degree by making it easier for them to get credit. But I think the stock market makes it worse for companies. 1) they have to hit the quarterly earnings and I believe almost all of them forfeit future profits for the right now. 2) emotional response of the stock market on a daily basis. There are mini-crises every day played up by the media. People buy and sell on bs hype. A companies real value isn't going to vary by 2% a day every day.
What it does do is add regulation to companies and makes it easier to buy and sell. So if you want to get rid of regulation get rid of the stock market.
What creditors? How does a creditor determine market value? If you mean creditors in the form of institutions that may fund a corporation through loans, those loans are backed up with physical capital assets like printing presses or machinery.
That has little to do with a much bigger picture of what the market may perceive the value of the company to be. Debt is only one measure of value. That value is represented in the stock and like I said, that value is a judgement by investors using lots of sophisticated analysis tools. Or, a flip of a coin.
Take a small business for example. A pool construction contractor may accumulate a lot of debt in the form of heavy equipment, concrete, tools etc. If you look at his balance sheet he looks deeply in debt. Why would his bank loan him so much money? Because they know a few good contracts periodically increase the numbers on his income statement to such an extent they know he's good for repayment if not they take the equipment and sell it. They know from dealing with other pool contractors what those % debt to income numbers should look like and they probably know what the industry potential for growth is.
As an investor in his company my share of stock gives me a chance to play around as an owner without having to get my hands dirty. The bank feels the same way only they're backed with equipment, I'm not. The stock price represents my confidence in his business. On the other hand the bank loans him money based on what interest they can charge and how easy it will be to repossess and sell his equipment.
Two widely disparate valuations emerge.
It seems to me you're blaming the market rather than the easily swayed participants in the market.
Quote from: AquaMan on September 02, 2011, 01:29:28 PM
What creditors? How does a creditor determine market value? If you mean creditors in the form of institutions that may fund a corporation through loans, those loans are backed up with physical capital assets like printing presses or machinery.
That has little to do with a much bigger picture of what the market may perceive the value of the company to be. Debt is only one measure of value. That value is represented in the stock and like I said, that value is a judgement by investors using lots of sophisticated analysis tools. Or, a flip of a coin.
Take a small business for example. A pool construction contractor may accumulate a lot of debt in the form of heavy equipment, concrete, tools etc. If you look at his balance sheet he looks deeply in debt. Why would his bank loan him so much money? Because they know a few good contracts periodically increase the numbers on his income statement to such an extent they know he's good for repayment if not they take the equipment and sell it. They know from dealing with other pool contractors what those % debt to income numbers should look like and they probably know what the industry potential for growth is.
As an investor in his company my share of stock gives me a chance to play around as an owner without having to get my hands dirty. The bank feels the same way only they're backed with equipment, I'm not. The stock price represents my confidence in his business. On the other hand the bank loans him money based on what interest they can charge and how easy it will be to repossess and sell his equipment.
Two widely disparate valuations emerge.
It seems to me you're blaming the market rather than the easily swayed participants in the market.
This is if the stock market didn't exist I would assume that the market value of a company would be calculated by their credittors before lending money. This seems like one of the only institutions that would care about the value of a company. Besides another company wanting to purchase them. I am saying that the value of a company without the stock market and valued by whoever does the valuation would be very different.
Quote from: CharlieSheen on September 02, 2011, 01:12:31 PM
What I am saying is that the value of the company that would be created by creditors (which would be the new basis for how much a company was worth) would probably be a lot different than what the stock market says. Thats why I say it doesn't match "reality".
I see where you are going, but to understand it, you need to realize that there are two ways to value a company.
The first way is strictly by assets and liabilities. When you approach a group of creditors to create a company they are very interested in looking at your assets vs liabilities and then adding any capital goods that the company will purchase with loaned money. It's a collateral situation. Sure, they assign some value to your business concept and plan, but that is very subjective.
Once a company gets to the point where it is eligible to be traded in the market, it has to jump through even more hoops and show an even higher degree of responsibility. The performance of the company and the companies fiscal management weigh heavily on the value of the company as controlled by the actions of stock holders.
So, you are correct. Neither actually reflects "reality" because companies are not static. If I were to estimate the value of say a restaurant, based solely on "reality," I would have to value it based assets and liabilities alone.
If I were to estimate the value of the same establishment as a private investor, I would subjectively account for my interpretation of whether or not that business could perform according to whatever prospectus I was offered. I would also look at the past performance of the participants.
The stock market takes it a step further and requires the business to publish several metrics or "fundamentals." So, based on how well you understand and interpret those metrics, you actually get a far clearer picture of the health and direction of that institution.
To further complicate the scenario, some companies (the ones I like) pay significant dividends. This allows them to award stock holders for . . .well . . .holding stock. This makes the fluctuations in the market less important. For instance, Kraft Foods pays me an approximation of 3.33% every year. So even though that stock may experience fluctuation in value within my portfolio, it pays me cash to keep it there, and over time that is significant.
Good explanation Gaspar.
Charlie, I would add that there is no requirement for a company to go public and offer stock. They may prefer to stay out of the market as you suggest and gather their operating capital through private ownership, bank loans or a combination of both. In that case you are correct that the value of the company would likely be different than a stock market valuation as it should, since its not the same type of company.
Quote from: AquaMan on September 02, 2011, 01:58:07 PM
Good explanation Gaspar.
Charlie, I would add that there is no requirement for a company to go public and offer stock. They may prefer to stay out of the market as you suggest and gather their operating capital through private ownership, bank loans or a combination of both. In that case you are correct that the value of the company would likely be different than a stock market valuation as it should, since its not the same type of company.
In fact, in many cases it's very wise for a company to stay out of the market. An IPO takes away a significant amount of corporate freedom.
Dividends drive me nuts. Companies that require heavy capital investment give out most of their capital they could invest... I say keep the money and grow the business. Create more jobs. The only reason to offer a dividend is to keep your stock price up. The only reason to get your stock price up is to take out more debt..
Kraft (Dividend 1.16)
Total Cash (mrq): 2.35B
Total Cash Per Share (mrq): 1.33
Total Debt (mrq): 29.65B
They are giving money away that they could reinvest in the business or pay down debt.
Apple (dividend 0)
Total Cash (mrq): 28.40B
Total Cash Per Share (mrq): 30.63
Total Debt (mrq): 0.00
Quote from: Gaspar on September 02, 2011, 02:02:29 PM
In fact, in many cases it's very wise for a company to stay out of the market. An IPO takes away a significant amount of corporate freedom.
Yes it does. When I went to work for a chemical company headquartered in the Dallas area in 1994, they were aggressively buying back their stock and completed that task in 2002. The main reason was having more flexibility as well as a really strong aversion to debt. When I hired on, I owed more on my mortgage and car payments than they owed in long-term debt.
Quote from: CharlieSheen on September 02, 2011, 02:04:40 PM
Dividends drive me nuts. Companies that require heavy capital investment give out most of their capital they could invest... I say keep the money and grow the business. Create more jobs. The only reason to offer a dividend is to keep your stock price up. The only reason to get your stock price up is to take out more debt..
Kraft (Dividend 1.16)
Total Cash (mrq): 2.35B
Total Cash Per Share (mrq): 1.33
Total Debt (mrq): 29.65B
They are giving money away that they could reinvest in the business or pay down debt.
Apple (dividend 0)
Total Cash (mrq): 28.40B
Total Cash Per Share (mrq): 30.63
Total Debt (mrq): 0.00
In which case their stock is likely to drop in value cause guys like Gas enjoy the fruits of their investment. The character of an Apple investor is way different than the character of a Kraft investor.
Its a pie with many ingredients and changing them alters the outcome. Or maybe I should have used 'Que as an analogy.
Quote from: AquaMan on September 02, 2011, 01:58:07 PM
Good explanation Gaspar.
Charlie, I would add that there is no requirement for a company to go public and offer stock. They may prefer to stay out of the market as you suggest and gather their operating capital through private ownership, bank loans or a combination of both. In that case you are correct that the value of the company would likely be different than a stock market valuation as it should, since its not the same type of company.
It is exactly the same company it isn't any different though. Just the way it got capital.
Quote from: AquaMan on September 02, 2011, 02:12:59 PM
In which case their stock is likely to drop in value cause guys like Gas enjoy the fruits of their investment. The character of an Apple investor is way different than the character of a Kraft investor.
Its a pie with many ingredients and changing them alters the outcome. Or maybe I should have used 'Que as an analogy.
Not necessarily. A well-balanced portfolio would have a Kraft and an Apple in it as well as other stocks for different market sectors as well as different growth and income strategies.
Quote from: CharlieSheen on September 02, 2011, 02:04:40 PM
Dividends drive me nuts. Companies that require heavy capital investment give out most of their capital they could invest... I say keep the money and grow the business. Create more jobs.
Kraft (Dividend 1.16)
Total Cash (mrq): 2.35B
Total Cash Per Share (mrq): 1.33
Total Debt (mrq): 29.65B
They are giving money away that they could reinvest in the business or pay down debt.
Apple (dividend 0)
Total Cash (mrq): 28.40B
Total Cash Per Share (mrq): 30.63
Total Debt (mrq): 0.00
Typically, companies that offer dividends are mature companies. They value stability and want long-haul investors. It makes a great deal of sense to offer dividends. I've bought and sold Apple about a dozen times going back to the mid 90s. I will continue to purchase and sell Apple. Apple can always be assured that investors will buy low and sell high.
Kraft has taken some of the same jumps and dips over the years. I continue to acquire more, and as they pay my dividend I purchase more shares of the stock. They can always be assured that they will sell more stock across the price spectrum over time.
Rabbit or the tortoise in many ways. Sure the rabbit is fast, but the tortoise is always moving forward and lives a hundred years longer. ;)
Quote from: CharlieSheen on September 02, 2011, 02:13:21 PM
It is exactly the same company it isn't any different though. Just the way it got capital.
No, actually it is not the same company. You can put a Kenmore badge on a Whirlpool produced washer. It is now a Kenmore.
A privately held company may produce the same cheese as Kraft, and in the same manner, but it is not the same type of company. Its funding recipe makes it different.
Quote from: Gaspar on September 02, 2011, 02:15:32 PM
Typically, companies that offer dividends are mature companies. They value stability and want long-haul investors. It makes a great deal of sense to offer dividends. I've bought and sold Apple about a dozen times going back to the mid 90s. I will continue to purchase and sell Apple. Apple can always be assured that investors will buy low and sell high.
Kraft has taken some of the same jumps and dips over the years. I continue to acquire more, and as they pay my dividend I purchase more shares of the stock. They can always be assured that they will sell more stock across the price spectrum over time.
Rabbit or the tortoise in many ways. Sure the rabbit is fast, but the tortoise is always moving forward and lives a hundred years longer. ;)
I just think its dumb to pay you to buy stock when they have debt. To clarify, they have debt that they do not seem to have the cash to get rid of anytime soon. Obviously as a part owner of the business you should be entitled to some profit from the company (we are looking at you Apple). But they should pay out a dividend that will allow them to pay off their debt say in 10 years (I'm No Dave Ramsey). Kraft is giving all their money away.
Also, companies who make their money on capital investment (power company, etc) obviously debt isn't treated quite the same.
Quote from: Conan71 on September 02, 2011, 02:15:19 PM
Not necessarily. A well-balanced portfolio would have a Kraft and an Apple in it as well as other stocks for different market sectors as well as different growth and income strategies.
Well of course not necessarily. Those who balance their portfolios seldom feel much pain when the market fluctuates. Keep in mind that to even have this conversation puts us all in a fairly small population. A lot of the owners of stock do so because their company offers it as part of the compensation package or its part of a mutual fund. They have no clue that they can or should balance out different types of stocks and investments.
Investors who are exclusively looking for a history of dividends would not consider Apple. Charlie, dividends have historically been one of the measures of how well run a company is. Some investors simply don't like the kind of risk that Apple's high/low cycle demonstrates. That cycle may not offer them the flexibility to sell when they want to, not just when its peaking. Dividends are their "buy" signal.
Charlie, let me ask you this.
If you had the choice between investing with Kraft with no dividends and no debt vs Kraft with reasonable dividends and acceptable debt (by analyst standards), which would you choose?
Quote from: CharlieSheen on September 02, 2011, 02:21:10 PM
I just think its dumb to pay you to buy stock when they have debt. To clarify, they have debt that they do not seem to have the cash to get rid of anytime soon. Obviously as a part owner of the business you should be entitled to some profit from the company (we are looking at you Apple). But they should pay out a dividend that will allow them to pay off their debt say in 10 years (I'm No Dave Ramsey). Kraft is giving all their money away.
The amount of debt is not as important as how the company responsibly services that debt. In many cases it's wise for a public company to carry high levels of debt and pay high dividends. It's basically a set of responsibilities to creditors and shareholders. Creditors love companies like Kraft who are willing to borrow large sums of money and take significant time paying those balances off. This also gives Kraft the ability to expand far beyond their capitalization without much risk.
Your credit card company loves it when you send them a minimum payment. Kraft's creditors love it when they reliably pay down debt over decades. The industries feed each other.
Quote from: AquaMan on September 02, 2011, 02:31:35 PM
Charlie, let me ask you this.
If you had the choice between investing with Kraft with no dividends and no debt vs Kraft with reasonable dividends and acceptable debt (by analyst standards), which would you choose?
That is a very tough choice. The no debt Kraft should definitely be making more money than the acceptable debt Kraft. Assuming they can invest their earnings into growth the company profits should increase. Its kind of a hypothetical and 0 debt Kraft is in the future (and should start to pay a dividend). I would obviously choose which ever netted me more money. Dividends are somewhat of a known quantity vs Kraft deciding to make crystal clear gravy or something.
Quote from: Gaspar on September 02, 2011, 02:37:10 PM
The amount of debt is not as important as how the company responsibly services that debt. In many cases it's wise for a public company to carry high levels of debt and pay high dividends.
You heard to from Gaspar debt doesn't matter! Debt Ceiling raises for everybody!!
Dang it Gaspar. You didn't let him learn!
You choose the Kraft that understands it must incur debt in order to compete with new products, new outlets, improved products etc. It takes money to do that. If they show a capacity to do that AND pay a dividend (share of profits) to their owners then you have a pretty good company.
Choose the Kraft that hordes its profits and prefers to stay static in the marketplace and you lose.
Quote from: AquaMan on September 02, 2011, 02:48:45 PM
Dang it Gaspar. You didn't let him learn!
You choose the Kraft that understands it must incur debt in order to compete with new products, new outlets, improved products etc. It takes money to do that. If they show a capacity to do that AND pay a dividend (share of profits) to their owners then you have a pretty good company.
Choose the Kraft that hordes its profits and prefers to stay static in the marketplace and you lose.
I said that a company should pay out some dividends but the plan should be to always be in debt. Any dividend they do pay isn't being invested back in the company either. So to say that an eventual debt free kraft is more static than a dividend Kraft isn't a proper comparison. Without the dividends they might not need to have debt to make the expansions on the business they want to. If you make more money with debt than without then you take on the debt.
Quote from: CharlieSheen on September 02, 2011, 03:03:05 PM
I said that a company should pay out some dividends but the plan should be to always be in debt. Any dividend they do pay isn't being invested back in the company either. So to say that an eventual debt free kraft is more static than a dividend Kraft isn't a proper comparison. Without the dividends they might not need to have debt to make the expansions on the business they want to. If you make more money with debt than without then you take on the debt.
Well, you gotta' do what's right for you.
As for me, when I invest in a company I like it when they understand that I am one of the owners and pay me a dividend rather than expect me to sell their stock in order to profit. Those companies historically weather pretty well. I think your original concern was that the market had too much debt. The market rewards those companies who prudently handle their debt and punish those who don't....unless you have friends in Washington who cover your bad bets.
Quote from: CharlieSheen on September 02, 2011, 03:03:05 PM
I said that a company should pay out some dividends but the plan should be to always be in debt. Any dividend they do pay isn't being invested back in the company either.
Dividend paid makes sure the stock is stable. In the long run, that IS investment in the company.
Quote from: Gaspar on September 02, 2011, 03:13:22 PM
Dividend paid makes sure the stock is stable. In the long run, that IS investment in the company.
My mother is almost exclusively in dividend-paying funds rather than growth funds since she's retired.
Quote from: Gaspar on September 02, 2011, 03:13:22 PM
Dividend paid makes sure the stock is stable. In the long run, that IS investment in the company.
If you need to borrow money or issue new shares to raise capital. It would be interesting to see a company that made a profit and stopped dividends about 20 or 30 years ago to see where the stock price is today. Now that Kraft has a history of dividends if they did stop it would obviously hit the stock hard. I wonder what it would be at if it never offered a dividend.
Quote from: CharlieSheen on September 02, 2011, 03:41:18 PM
If you need to borrow money or issue new shares to raise capital. It would be interesting to see a company that made a profit and stopped dividends about 20 or 30 years ago to see where the stock price is today. Now that Kraft has a history of dividends if they did stop it would obviously hit the stock hard. I wonder what it would be at if it never offered a dividend.
They would most likely be out of business. Dividends are a strategic move, not entered into lightly. Kraft has merged several times over the years with other companies. Dividends are in many cases "promises" to investors so that a company can expand without threat of losing stock value.
Kraft would very likely be a very small company or purchased by a larger company ages ago. Their IPO was in 1924 I believe.
Buy low sell high...Thats all you need to know....
Quote from: Gaspar on September 02, 2011, 03:57:19 PM
They would most likely be out of business. Dividends are a strategic move, not entered into lightly. Kraft has merged several times over the years with other companies. Dividends are in many cases "promises" to investors so that a company can expand without threat of losing stock value.
Kraft would very likely be a very small company or purchased by a larger company ages ago. Their IPO was in 1924 I believe.
A third reason would be to use their stock to purchase other companies.
Quote from: Breadburner on September 02, 2011, 04:02:21 PM
Buy low sell high...Thats all you need to know....
Some say buy high sell higher.
Quote from: CharlieSheen on September 02, 2011, 04:07:47 PM
A third reason would be to use their stock to purchase other companies.
??
Quote from: Gaspar on September 02, 2011, 04:14:00 PM
??
Stock swap . Dividend, higher stock price, higher buying power.
Quote from: Gaspar on September 02, 2011, 03:13:22 PM
Dividend paid makes sure the stock is stable. In the long run, that IS investment in the company.
Sort of. There are examples of dividend paying companies going Chapter 11 because they didn't feel like they could stop paying dividends.
As an investor, dividends can be nice, in that they compensate for slower growth in stock price. But they have that pesky downside of increasing the company's cost and reducing their flexibility. Nobody likes to say "no dividend this year," as it almost always results in a steep tumble in share price. IMO, companies spend too much time obsessing over share price, actually. It contributes to the short term mentality that helps justify the actions that lead to Enron-like scandals or our most recent financial meltdown.
The problem is that while, over time, the share price should converge to something approximating the actual value of that portion of the company, it clearly does not do any such thing on short time scales. Share prices are often affected quite severely by broader market trends which result in money flooding out of the stock market as a whole or vice versa. The connection with the company's net worth (and even future growth prospects) is tenuous at best. During the 80s, there were a rash of companies selling off major assets (Sears selling the Sears Tower is a good example) because said assets were worth more than their market cap and management didn't want to be taken over and sold off in pieces. It didn't matter that they were still making money, but investors just weren't interested in stodgy old companies with limited growth prospects, even if they were making and likely to continue making a respectable profit each year. They'd rather be in the new hotness.
Quote from: Breadburner on September 02, 2011, 04:02:21 PM
Buy low sell high...Thats all you need to know....
Good plan if you can do it. There has to be someone buying high and selling low for that to work. :(
Quote from: Gaspar on September 02, 2011, 02:02:29 PM
In fact, in many cases it's very wise for a company to stay out of the market. An IPO takes away a significant amount of corporate freedom.
Quick Trip comes to mind.