Pete, I do not know how much of the total market valuation is now in the hands of index funds and other funds, but I would guess, that a good chunk of all dividends are invested back into the stock market. In index funds, these dividends are invested back into the same stocks that just paid out the dividends, except that the revenuer takes out some 40 to 50% (including state taxes). When GM takes $4 billions, and instead of giving $2 billions to the government it buys its own shares, I see this as the same as if the funds used the same $4 Billions (for which GM would have had to pay out about $7 or %8 billions) and invested it back into GM. This to me is a dividend of 15%. I agree with you that you the recipient of the dividend do not feel the hard cash passing through your hands, and joyfully taking half of it and giving it to various government agencies, but as far as money flows are concerned, in my book those buy backs are tax free dividends. What worries me, is that one day, the revenuer is going to wake up and see $50 to $100 billions that could have gone to its coffers and close this nice loophole.
Zeev |
