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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: mepci who wrote (160547)	9/9/2000 3:08:18 PM
From: IceShark	Read Replies (1) \| Respond to of 176388

Does the taxation laws require that beyond certain retained earnings, the company has to distribute profits? Well, actually, yes. It is the Personal Holding Company rules. But Dell will never fall under that. Those rules were made to prevent an individual, or small group, from sheltering income from being taxed on the individual level by keeping it up in the corporation. There is a good reason a company shouldn't distribute extra cash as dividends. The earnings get taxed at the company level and then taxed again as dividends at the shareholder level. Not a lot left to a taxable shareholder. Of course this is not a problem for retirement accounts or pensions that are exempt from taxes on current earnings. And that is a huge pile of the invested capital. So, many corps buy back stock, which is a non taxable event and should benefit the shareholders by increasing their share of the pie. There are at least two problems that arise. The biggest one is the company then issues a ton of options and dilutes shareholder interest back down. They are basically transferring the cash pile from the company to the employees behind a curtain, ala the Wizard of Oz, since it never shows up in the income statement. A secondary problem is why does management think buying back stock is the best use of funds? Does it mean that they can't figure out a better place to put the cash to work, i.e. maybe they are a mature company with slower growth, or are self interests entering the picture. Such as providing buying support to the stock price so they can become rich via options exercise? I have no problem paying crazy prices on a story stock that may pan out and actually work. But there better be a healthy discount for the fact that it may not pan out. The market has lost all touch with reality on many valuations, why I don't really know, though I have some funny theories that sound pretty good if everyone listening is drunker than skunks. -g- BTW, you should know that I have puts on dell due to the aforementioned and possible slowdown in biz. I don't have them because I think dell is a bad company; I have them because I think they are overvalued. And my comments here are not directed at dell specifically, just my thoughts on how the overall market is working. But I am an *Evil Short*. -g-