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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (70257)9/25/2006 8:05:42 AM
From: Wyätt Gwyön  Read Replies (1) of 110194
 
if you look at VLO's earnings growth (1000% in the space of several years), obviously they've had better things to do with their cash than maximize the dividend. with the stock PE at 5, stock buybacks have a 20% return. their capital projects can have upwards of 30% IRR. compared to a 5% cash yield (what shareholders would get for cash returned as dividends), these are superior returns.

in the future, if/when VLO has a higher share price, attractive capital projects are not available, and they have no debt to pay down, they will increase the dividend. my biggest holding, COS, pays a significant dividend (significant enough to cover my living expenses), which i expect to grow meaningfully over the coming year.

i consider buying a co that pays a high, consistent dividend to be more conservative than buying a co that doesn't pay a big dividend, but that doesn't mean every co should pay a big dividend. it depends where they are in their development, what other opportunities they have, etc.

the kinds of stock buybacks i DON'T like are those by tech companies that simply offset massive dilution from huge option grants. those simply remind me of three-card monte.
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