Bill Wexler's Profits of DOOM Message Board

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Strategies & Market Trends : Bill Wexler's Profits of DOOM

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To: Y2k_fan who wrote (3256)	10/2/1998 4:42:00 PM
From: BelowTheCrowd	Read Replies (2) of 4634

Y2K fan, > Most high tech stocks do not have dividend And why should they? From a tax perspective, dividends are the WORST way to pass on earnings to shareholders. If you pay a dividend, then first you (the company) must pay income tax, THEN the shareholder who receives the dividend must pay income tax on the dividend. Thats DOUBLE taxation on any dividend dollar paid out. Younger (some high tech, some others) firms who didn't get into the dividend trap years ago have figured out that it's a lot more efficient to spend the same money buying back company stock and increasing the stock price in that way. The shareholders can then sell the stock at THEIR CONVENIENCE. Long term shareholders can sell and claim the profits as long-term capital gains at a more desirable rate than dividend income. It works better for all concerned. Of course, you would rightly point out that in a bad economy share repurchases might have to be halted. But dividends are not a sure thing either. In bad times, many companies have had to cut or suspend them too. Bottom line is earnings. If the earnings are strong it'll translate (by one mechanism or another) into value for shareholders. Exactly how the company chooses to create that translation can vary. Intel, for example, takes the position that they will pay the minimum dividend required in order for them to be considered a growth and income stock, rather than a pure growth stock. I think it's about 1/2%. Their belief is that by being included in less volatile growth and income portfolios, they take some volatility out of the stock. Microsoft doesn't bother. They're happy to be growth only, and pass on the value with ongoing share repurchases. Same with Cisco and others. mg

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