Nonetheless, no one owning Qualcomm receives any of Qualcomm's profits, which vexes me. I only want to be an owner or part owner of a business if I can share in its profits.
Puck, with all due respect, this comment borders on the absurd. As I hope you know, when you own shares of a company, you don't possess a piece of paper whose only ability to generate value to its owner stems from dividends granted by the company whose name happens to be on it. Rather, like any ownership stake in a corporate entity, public or otherwise, it makes you the owner of a company's current assets and future cash flows to a degree proportionate to your stake. That is, if a company has $8 billion in cash on hand, no debt, and one billion shares outstanding, even if it isn't paying any dividend whatsoever, you're the legal owner of $8 in cash for every share of the given company that you have; and for every billion dollars in future cash flows that the company delivers, you become the owner of another dollar/share.
Personally, I've never been a big fan of corporate dividends, for two reasons. First, as pointed out by Caxton, they often place limits on a growing company's ability to reinvest its profits into new ventures, technologies, markets, etc. For example, the fact that the shareholders of local phone companies continue to insist on being paid large dividends is often cited as one of the primary culprits behind the slower-than-expected rollout of residential broadband services. For a company such as Qualcomm, which appears to have its hands more than full between its VC investments and operator financing endeavors, the payment of dividends could be especially detrimental to the carrying out of its long-term business objectives.
Also, you might be surprised to learn that some of the greatest corporate success stories in American history, including Microsoft, Dell, and Berkshire Hathaway, have made it a point never to provide dividends to their shareholders, for this exact reason. Are Bill Gates, Michael Dell, and Warren Buffett subscribers to the "Greater Fool Theory" as well?
Second, even if this argument were to be ignored, for someone whose investment time frame in a given company is more than one year, dividends don't make sense from a tax perspective either, at least if you're living in the United States. As you should know (being a long-time Nokia shareholder), corporate dividends are taxed at a rate of 30%. Thus, if a company gives out a dividend of $.50/share, $.15/share will automatically go to our wonderful, benovolent federal giverment. On the other hand, if the company doesn't pay out a dividend, and choses to put all of the cash it's generated into a bank or short-term bonds, when you sell your shares a few years later, not only will you realize more than the $.50 provided by the dividend (assiming that a company's increased its overall shareholder value), due to the fact that interest will have compounded on that sum, your gains will "only" be taxed at the long-term capital gains rate of 20%.
IMO, dividends are nothing more than an equity insurance policy set up to assuage the jitters of shareholders who are unsure of their company's ability to, over the long-term, fend off market risk/volatility and/or increase shareholder value, leading them to want to be guaranteed a near-term payback of sorts. And like all insurance policies, it can be a highly costly one to its owner should his/her fears prove unfounded.
Eric |
