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To: Wyätt Gwyön who wrote (14337)	4/17/2002 5:02:49 PM
From: sjemmeri	Read Replies (2) \| Respond to of 78710

>but i don't think that's the real reason dividend yields have declined. In fact to go one step further, can't one argue that, on the whole, corporations are paying about the same dividends as >10 years ago by the measure that matters - payout ratio (no sane company would set the dividend as a yield and be forced to increase it just because the stock went up)? Specifically, if dividend yields (div/P) are ~ half what they were and P/E are ~ double what they were then div/E hasn't changed much on the whole. Does anyone have historical payout ratio data?

To: Wyätt Gwyön who wrote (14337)	4/17/2002 11:17:34 PM
From: James Clarke	Read Replies (2) \| Respond to of 78710

<<but i don't think that's the real reason dividend yields have declined.>> Managements always cite the capital gains vs. dividend tax rates as the reason they are stingy with dividends and buy back shares instead. But there's another reason thats rarely mentioned, but is huge I think. Stock options. Think of a company that kicks out huge amounts of free cash flow. Options only incent appreciation of the stock price, not the other part of total return which is the dividend. Think about having 10 year options on a company which pays out 60% of its free cash flow as a dividend vs. the same company which has no dividend yield but just piles up the cash on the balance sheet or buys back stock. If you were the executives getting that incentive, what would you do? Option holders don't get the dividend. Thats just cash out the door for them, literally. What do you think Microsoft option holders would think about a plan to pay out 60% of the free cash flow as dividends? I like dividends where I don't trust management to do the right thing with the free cash flow, and there are very few managements I trust to reinvest cash better than I can. But the incentives for management under option plans make them all allocate capital in a way that hurts shareholders in many many cases.