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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (1152)	1/19/1998 10:21:00 AM
From: Zeev Hed	Read Replies (1) \| Respond to of 9980

Tommaso, few months back I have gone through the exercise with a number of the DOW companies and was surprised to find (taking a 130% for taxation) that the equivalent dividend rate was closer to 4% for those companies. You are right that IBM has increased its borrowing, but I do not see anything wrong borrowing at 6.5% and having return on equity of more than 25%. Such returns can be achieved when borrowing wisely (cost of borrowing is much lower than the return on those debts, this is the basic principle of cautious use of debt). It would be like telling the utilities companies to payback all their debt before they pay out a penny of dividends. It would be like telling AKSEF right now, go and issue 100 MM new shares to finance your part of the pipe line in stead of borrowing that money at let say 8 or 9% and getting a guarranteed return on those borrowing of 16% (as per their agreement with the Sudanese government). If they issued new securities I would have a "grand" sell signal on them. Some debt is very good, when managed in such a way that it can be paid off (or even just serviced) even under the worse scenarios. Zeev Zeev