Dividend payout ratios over history. Other div. stuff.

Research on Safe Withdrawal Rates

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unclemick
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Joined: Sat Jun 12, 2004 4:00 am
Location: LA till Katrina, now MO

Post by unclemick »

Petey

Good stuff.

Thanks.
JWR1945
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Joined: Tue Nov 26, 2002 3:59 am
Location: Crestview, Florida

Post by JWR1945 »

Thanks for the information.

There is one thing to keep in mind about share buybacks:

They are used to circumvent a tax law, which is known as the millionaires tax. Companies cannot deduct salary payments above $500000 (per year). [Only politics can come up with math like this.]

Payments in the form of performance based incentives can escape this special, punitive treatment. Suddenly, senior management finds itself swamped with stock options and shares that they want to convert to cash. The right level in stock buybacks keeps this from affecting prices.

It gets worse. When management does a lousy job and the options should be worthless, the strike prices suddenly get adjusted. The options become valuable once again.

In terms of how investors should treat stock buybacks, the best answer seems to be to treat them as special, nonrecurring dividends. Typically, special dividends have added nothing to prices. They have signaled nothing in the way of corporate optimism.

Have fun.

John R.
peteyperson
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Post by peteyperson »

I would say that is true but it depends on the level of buybacks. Timberland just bought back 4% of their stock and have done so for a couple of years now. This is a smart use of their excess cash flow as growth in the US has slowed and they can only invest internationally so fast. This boosts their 8% earnings growth rate to 12% on an earnings per share basis. This is just one example. In the case of Timberland, it is half owned by family interests who founded it three/four generations ago, the great grandson is the youthful CEO and there is clearly a love of their products, attention to detail and adventurous. charitable approach to the outdoors which appeals to their core customer base.

I do acknowledge that most companies don't use buybacks in a fair manner and for that matter manage cash flow poorly. This is why I think there are opportunities in selecting well-managed, strong businesses that do manage cash flow to the benefit of shareholders and not management. This can substantially boost earnings growth above the 5% average for the S&P 500 and so one can come out ahead even if one didn't buy at a discount but plans to hold for the long-term.

Petey
JWR1945 wrote:Thanks for the information.

There is one thing to keep in mind about share buybacks:

They are used to circumvent a tax law, which is known as the millionaires tax. Companies cannot deduct salary payments above $500000 (per year). [Only politics can come up with math like this.]

Payments in the form of performance based incentives can escape this special, punitive treatment. Suddenly, senior management finds itself swamped with stock options and shares that they want to convert to cash. The right level in stock buybacks keeps this from affecting prices.

It gets worse. When management does a lousy job and the options should be worthless, the strike prices suddenly get adjusted. The options become valuable once again.

In terms of how investors should treat stock buybacks, the best answer seems to be to treat them as special, nonrecurring dividends. Typically, special dividends have added nothing to prices. They have signaled nothing in the way of corporate optimism.

Have fun.

John R.
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