Applied Materials No-Politics Thread (AMAT) Message Board

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Technology Stocks : Applied Materials No-Politics Thread (AMAT)

AMAT 228.68

-2.7%

Nov 11 3:59 PM EST

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To: Nancy who wrote (12133)	11/19/2004 8:55:16 AM
From: Bookdon	Read Replies (1) of 25522

The choice of words ("entitlement") was poor, but the idea expressed is correct. Once you initiate a dividend, any time you decrease the payout (in response to business volatility) there is a large impact on the stock price. The problem, however, of what to do with the money is not trivial. Most companies have a poor record regarding the investment of surplus cash by the purchase of "related" businesses (remember the large AMAT investment in Etec?). If the core business is growing, then investment of earnings in expanding production and R&D will grow profits, but the core business is no longer growing as rapidly as in the past. Investment in marketing may gain market share from competitors, but once you have the major share, growth slows. That is the point at which you have to decide if returning cash to the investors (as MSFT has chosen) puts that money to its best use. The problem is that the market sees that as a signal that a "growth" company has become a "mature" company, and the PE ratio takes a hit.

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