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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: pfalk who wrote (67950)	5/21/2005 8:03:38 AM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

I agree with most of your thoughts. However, you missed one thing. When a company declares a dividend, then that creates the expectation that there may be future ones. That adds a yield to the company's expected return to shareholders, which inevitably increases the stock price, when everyone starts to calculate the value of a share as DCF plus the additional yield. That would put some additional options in the money, as in your previous example. But there's an even greater flaw to your argument. Once an option is issued, it has already created dilution. EPS is calculated taking into account all potentially dilutive securities, including options. So whether or not the employee exercises them, they are still dilutive. So whether the company buys back shares or issues a dividend, the net dilutive effect of the existing outstanding options remains the same.