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Maybe the following "The Economist" article can settle the endless dividends discussions?

https://archive.ph/wZM38

Quote:
Gabriel Zucman of the Paris School of Economics takes aim at in his short new book, “We Need to Tax Billionaires”. Mr Zucman, whom your columnist interviewed for our “Inside Economics” show, has arguably surpassed Thomas Piketty, his compatriot and erstwhile co-author, to become the favourite economist of left-wingers everywhere.

His latest thesis is that holding companies allow the ultra-rich to pay taxes at far lower rates than most of the public, and even those who support flat (rather than strongly progressive) taxation should support new levies on wealth to level the playing field.
.......
.......
Holding companies are more of a problem for European taxmen than for America’s IRS. Uncle Sam has since 1934 imposed a 20% tax on the undistributed income of personal holding companies, after public fury when J.P. Morgan, a plutocrat banker, paid no income tax for two years running. Still, Mr Zucman says this Rooseveltian fix was incomplete. He notes that Warren Buffett’s listed holding vehicle, Berkshire Hathaway, has not declared a cash dividend since 1967. Earnings pile up, free of income tax.

If a left-wing Economist who wants to - rightfully - tax the rich more sees Berkshire because of it´s non-dividend policy as a vehicle for them to escape full taxation then maybe the ones in favour of dividends should listen?

Unbelievable, Google it, Nvda, Googl. MSFT, aapl, etc all pay a small dividend, this is complicated? Not paying a dividend the past three years has increased total after tax for brkb shareholders? Name the last three investments that Buffett has purchased in size that do not pay a dividend. Who do you expect to be the new incremental buyer of brkb, today? Brkb yielding .9 percent like spy would hurt demand for the common? All dividend payers are poor capital allocator's or just the companies Buffett purchased over the years got this right? Thank you.

. Earnings pile up, free of income tax.


There is a case to be made, but not with such inexact writing. Berkshire obviously pays vast amounts in corporate income tax, it's just that the remainder sitting within the company is not triggering personal income tax so long as it sits within the firm.

That second level of tax mainly just gets displaced to one remove, the moment that the shareholder sells and makes a personal capital gain, which can be deferred for a long time, or forever on some cases.

There is an excellent case to be made that all capital gains should be taxed at the same rate as ordinary income. Softened a pinch with inflation adjustment and year-to-year smoothing of marginal tax rates.

And also a good case to be made for slowly reducing personal income tax rates and especially employment taxes, while raising national sales tax rates.

Jim

should read " Not paying a dividend the past three years has increased total after tax RETURNS for brkb shareholders? ""

net,net, our net worths are higher today because brkb never authorized a small dividend?


btw, why do you suppose these boards have lost so many super sharp posters the past 25 years?

HINT< can you name three old time posters currently active here who have conceded that Buffett waited way too long to authorize buybacks at material discounts to Iv, name them.

Continuing to argue that Cook, Gates, Huang, the googl gang etc are all poor cap allocators and none of them understand that a div in a taxable account creates a taxable event is embarrassing.

Greg has to try and increase demand for brkb common, going forward, not based on what Buffett did in 1979, good luck to him, it won't be easy.

Carry on loyal members of the church of brkville , ucmtsu.

net,net, our net worths are higher today because brkb never authorized a small dividend?

Yes.

Do you want the numbers? Not that they would ever change your mind--the heart wants what the heart wants--but I'm happy to provide them.

Jim

And also a good case to be made for slowly reducing personal income tax rates and especially employment taxes, while raising national sales tax rates.

It won't happen in the USA. The Federal Government does not have the authority to make a national sales tax. It would require a constitutional amendment.
Or a ruling from a Hawaiian district court judge. ;-)

Also, we know darn good and well that we would wind up paying BOTH a sales tax and income tax.

" Yes.

Do you want the numbers? Not that they would ever change your mind--the heart wants what the heart wants--but I'm happy to provide them.

Jim"


Thanks Jim but to claim you can prove that nvda, msft, google, aapl, etc are all run by poor cap allocators and that their shareholders would have higher net worths today, if they never paid a div is insulting to those companies.

I admit I no longer waste time listening to calls, even brk.

Has anyone ever asked Buffett why those companies pay a small div what does he think?

Has anyone on the nvda,msft,googl, etc calls ever asked why they don't just payback stock and cancel the div?

Are there funds, institutions, high net worth investors who cannot or will not buy a non div paying stock?

Thank you for your attention to these issues. :) I don't need a paper written by a professor explaining that Americans pay taxes on div income, I know. googl, aapl, etc have been great holds despite that terrible div income, however, if you would like to start a gofundme for me, I would be very grateful. your pal, H in LV.

don't just payback stock and cancel the div?"


BUYBACK, I better use the computer :)

Do you want the numbers? Not that they would ever change your mind--the heart wants what the heart wants--but I'm happy to provide them.
...
to claim you can prove that [...] is insulting to those companies.


As predicted, evidence will never change your mind : )

But there are other readers who might be interested.

As it turns out, the arithmetic is simple and pretty conclusive.

You do have to make some assumptions about personal income taxes on dividends and capital gains and on whether the P/B in the market would have changed due to a very small change in cash-to-ops ratio, but interestingly, it doesn't really matter what numbers you pick, you always get the same result. Even counting paying today the till-now-deferred capital gains tax on an unsold Berkshire share, with typical assumptions a person would be about 4.3% poorer today if Berkshire had paid a gradually increasing dividend in the last 20 years that averaged a 1% yield. That of course counts the after-tax cash you'd have received from the coupons.

If you don't count the ultimate cap gains tax on the shares, because of step-up or whatever, the gap is about 7.1% poorer.

Jim

" If you don't count the ultimate cap gains tax on the shares, because of step-up or whatever, the gap is about 7.1% poorer.

Jim"


You mean well but I'm busy now. Just for fun, if the fools at nvda, google, and aapl didn't pay a dividend, how much higher would their shareholders net worths be today? R U sure?


BTW, how have my calls been the past 30 days are you here to make money, or to write theoretical term paper's? ::))

I take it that hclasvegas, whom I have blocked, has posted nine times between 20601 and 20612, inclusive. Nice.

BTW, how have my calls been the past 30 days are you here to make money, or to write theoretical term paper's? ::))

I don't think anybody here knows what you're talking about much of the time (I don't) so it's hard to say. I'm sure it's great.

I stick with the simple stuff. The fanciest my reasoning gets is that really high and low valuations usually don't last, so a wager in the direction of mean reversion usually adds value. Berkshire is down -2.8% year to date, but I've made enough on BRK in that time to have bought a house. (that's not saying much without knowing the size or location!)

Jim

Greg has to try and increase demand for brkb common

He really doesn’t need to do that, because there isn’t a lack of demand.

Berkshire’s stock market value continues to earn a return proportional to the return from a change in its intrinsic value. That’s the company’s stated mission, and it’s a good one.

That you need market returns that are higher than Berkshire’s change in intrinsic value during your ownership period is not Greg’s problem.

I don’t support any kind of financial manipulation to get higher returns for current shareholders at the expense of proportional returns for future ones. I’ll be recommending Berkshire to my children, so hopefully from 1 current shareholder it turns into 5.

"I take it that hclasvegas, whom I have blocked, has posted nine times between 20601 and 20612, inclusive. Nice."

And yet, after more than 20 years of this attention seeking behavior, otherwise intelligent posters engage with him

🤔🤔

" I don't think anybody here knows what you're talking about much of the time (I don't) so it's hard to say. I'm sure it's great."


Oh my, LONG BRKB, short any index that agrees to reduce the required hurdles for expedited inclusion, is above your paygrade? That's confusing here?

My bad, I'm not spending enough time here on wall street 101.

after more than 20 years of this attention seeking behaviour, otherwise intelligent posters engage with him

Hey, even an infinite number of typewriter-enabled monkeys occasionally comes up with something worth thinking about : )

In this case, for example, if Berkshire had just paid out (say) 5% of its cash as a dividend over the last while, would the market still assign it about the same P/B? I needed to estimate this to estimate the wealth drag from a periodic dividend.

Rationally P/B should be a very very slightly higher multiple of a 5% lower book value, as active assets deserve a higher multiple than cash does. I certainly don't buy into the religious belief that dividend payers get higher valuation multiples (much more likely the reverse), but nor do I believe that the market is predictably rational.

It's not something I had previously pondered, so I'm capable of appreciating the monkey noise. Sometimes.

Jim

Jim

For your calculation on dividends, what was the assumption for change in stock price due to change in demand resulting from the issue of the dividend?

Aussi

What is this "hclasvegas" you speak of?

All I see is holes in the post numbers. And posts which appear to be responses to some post that is out of my ken.

Hey, even an infinite number of typewriter-enabled monkeys occasionally comes up with something worth thinking about : )


"There must be a pony underneath this pile of dung!"

Continuing to argue that Cook, Gates, Huang, the googl gang etc are all poor cap allocators and none of them understand that a div in a taxable account creates a taxable event is embarrassing.

The straw men are having a barbecue tonight!

R:

" Jim

For your calculation on dividends, what was the assumption for change in stock price due to change in demand resulting from the issue of the dividend?

Aussi"


Good morning, meta, google, aapl, msft, etc ALL aggressively use stock-based comp, they issue options to key people.

Does it make sense that they would all pay a small annual div if they believed that the div would hurt demand for the common?

nvda raised its div from 4 cents to a dollar, to decrease demand for the common?

Has Buffett ever debated the pros and cons of a small div with Gates? With Cook?

Has Buffett ever, suggested, to Cook that he freezes the div and just buyback more stock?

meta,nvda,googl,aapl,msft, would trade at higher multiples, today, IF they never paid a div?

This makes sense here? Does Buffett believe this?

Why buy div paying stocks if there is proof that non div payers provide superior long-term returns?

Note, I have touted adx and cet for years both in an American IRA and my taxable accounts. It's worked out very well, despite the divs. ::))

after more than 20 years of this attention seeking behaviour, otherwise intelligent posters engage with him

Hey, even an infinite number of typewriter-enabled monkeys occasionally comes up with something worth thinking about : )

reminds me of
"A wise man can learn more from a foolish question than a fool can learn from a wise answer."
(Bruce Lee or Cato the Elder)

For your calculation on dividends, what was the assumption for change in stock price due to change in demand resulting from the issue of the dividend?

"Demand" doesn't generally change stock prices past the trading noise window. (prices are set purely by supply and demand for capital goods, but not so for purely investment securities, where it's better viewed as changing estimation of available return than supply/demand per se). Weighing machine and all that. Consequently I didn't do anything in terms of estimating a change in demand per se. US dividend payers pretty consistently have slightly lower average long run total return even before tax than non-dividend-payers, but I ignore that and assume it's meaningless and therefore a tie.

I assumed that the smallish reduction in cash did not change the appreciation of the value of the firm's operations and assets--the cash pile would still be huge today--and therefore did not change the valuation multiples the market applied to those assets. It's almost the same firm, so we'd expect about the same multiples of assets, revenues, and earnings. In other words, I calculated how much book per share would have dropped, and applied the same multiple of book observed on each day in the past to the slightly lower adjusted book per share. So a 1% drop in cash per share was assumed to correspond to a 1% drop in the share price.

There's another way you could go:

In theory a rational market should assign a high P/B to the operating assets and a separate P/B of (or near) 1.0 to the cash in excess of operational needs, giving a weighted average of (it seems) around 1.4. (incidentally, this theory does not seem to fit the data very well for Berkshire, but I digress). So a slight reduction in cash should cause a rational market to assign a slightly higher overall P/B: same high multiple on op assets, same 1.0 on a little less cash, slightly higher weighted average multiple, times a lower number. In this case the market price of a share would be lower by only the amount of cash paid out. (this is normal for ex-div day, but we're talking about the long run cumulative effect). On that assumption, the wealth penalty of 20 years of 1% average yield is only -2.6%.

For both methods, the figures I posted assume 25% tax on dividends. I pay 30%, but I'm a little atypical.

Jim

"A wise man can learn more from a foolish question than a fool can learn from a wise answer."
(Bruce Lee or Cato the Elder)

It's a great point! But a guy or gal only has so much reading time in a day. I allocate more than my fair share to the activity! But there's still always way WAY more highly valuable material to read than there is time. I am forced to decide what merits my time and attention, and what does not. While potentially producing the rare useful nugget, a very few posters (two, to be exact) easily go in my "Does not merit my time and attention" box, sort of the equivalent to Warren and Charlie's quick-filter "Too Hard" box.

As it turns out, the arithmetic is simple and pretty conclusive.

The Gottesmann example that I've shown the arithmetic many times so far is also conclusive. If there were a 1% dividend for the 60 years they held the stock then their gift to charity would have been about 20% lower than it was.

While potentially producing the rare useful nugget, a very few posters (two, to be exact) easily go in my "Does not merit my time and attention" box, sort of the equivalent to Warren and Charlie's quick-filter "Too Hard" box.

It is one thing to spend time discussing all the pluses and minuses of how to arrange the deck chairs on the titanic.

It is another thing to spend time professing explicitly how your time is best not spent on discussions of the desk chair questions, while implicitly showing how you think discussions of how your time is actually best spent by discussing how your time is best spent.

Ultimately, we are all spending our time in a relatively pleasant past-time, discussing our first-world problems with other people who have first-world problems and the time and inclination to discuss them.

Does HC have a point that a lot of very smart very successful companies issue small dividends regularly, and there is probably a reason for this which is not brain dead? Almsot certainly yes.

Does Mungofitch have a point that using relatively reasonable models of pricing and valuation, you can actually show that a company which tosses 1% of its Market Cap over the transom each year will likely show signs of having 1% less of its Market Cap to invest in its growth each year? Again, almost without a doubt.

Indeed HC even has a point that Buffett himself is not as doctrinaire as his most zealous acolytes on this board. While the zealots declare in no uncertain terms that dividends are just wrong, Buffett has happily owned gigantic core positions paying dividends. Buffett has NEVER had a problem deciding that hundreds of billions of his magnum opus should be dedicated to dividend paying stocks.

My vote: let the duels and the circular firing squads continue, AT LEAST until morale is improved.

Thank you for your attention to this matter.

R:)

Does HC have a point that a lot of very smart very successful companies issue small dividends regularly, and there is probably a reason for this which is not brain dead? Almsot certainly yes.

Does Mungofitch have a point that using relatively reasonable models of pricing and valuation, you can actually show that a company which tosses 1% of its Market Cap over the transom each year will likely show signs of having 1% less of its Market Cap to invest in its growth each year? Again, almost without a doubt.

The difference between the two, one guy feels the need to make his point on an hourly basis!!!

Buffett himself is not as doctrinaire as his most zealous acolytes on this board. While the zealots declare in no uncertain terms that dividends are just wrong, Buffett has happily owned gigantic core positions paying dividends.

I agree with your post, but be aware that this particular bit doesn't necessarily make sense. There is no contradiction to explain.

Imagine you're overpaying for oranges. There are two parties to the deal. The pricing decision is great for one of them, not the other. Mr Buffett likes gathering dividends, as it gives cash in the door to continue the acquisition flywheel, but does not like his own firm paying them. He likes to be on one side of the deal, not the other.

One might look more closely and think naively that, well, if a juicy dividend is good for Berkshire as a long term shareholder then it should be good for a long term Berkshire shareholder. But nope. It depends entirely on the type of company. Is it a business where allocating new capital at high returns is a realistic opportunity? Yes for Berkshire (so far), no for Coke. So one shouldn't pay a dividend, the other should.

Jim

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