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Data Update 7 for 2023: Dividends, Buybacks and Cash flows

Musings on Markets • 359 implied HN points • 08 Mar 23
💰 Finance Corporate Finance Investment Strategies Cash Management Dividend Policy Market Trends
  1. Buybacks are becoming more common than dividends for companies to return cash to shareholders. Companies find buybacks more flexible and less of a commitment than regular dividend payments.
  2. Dividends should be one of the last steps in a company's financial decisions. If a company has no good investments, it should consider paying dividends or buybacks as a way to return cash to owners.
  3. There are tax differences between dividends and buybacks that may influence shareholder preferences. Although dividends used to be taxed more heavily, the gap has narrowed in recent years.

Corporate finance in illiquid markets

Musings on Markets • 0 implied HN points • 29 Dec 10
💰 Finance Corporate Finance Investment strategy Debt Management Market Liquidity Dividend Policy Corporate Finance Investment Market Liquidity Dividend Policy
  1. In illiquid markets, companies find it hard to access funds, which can limit their ability to take on new investments. Instead of focusing just on net present value, using a percentage return like IRR can help maximize their value.
  2. The mixture of debt and equity that minimizes costs can change in illiquid markets. If the equity market is less liquid, companies may want to increase debt, but if the debt market is illiquid, they might choose to decrease debt.
  3. Companies facing illiquidity may decide to keep more cash on hand instead of returning it to shareholders. This can lead to higher dividends and less reliance on stock buybacks, as investors favor cash during uncertain times.

Preferred Stock: Fish or Fowl?

Musings on Markets • 0 implied HN points • 21 Mar 09
💰 Finance Investing Stocks Capital Economics Market Analysis Stock Market Capital Structure Dividend Policy Corporate Finance
  1. Preferred stock is tricky because it behaves differently in the U.S. compared to other countries. In the U.S., it mainly gives fixed dividends, while in places like Brazil, it acts more like common stock with variable dividends.
  2. When figuring out a company's cost of capital, preferred stock can be confusing. If it makes up less than 5% of the company's value, it's easier to ignore; if it's more, you need to treat it as a separate source of funding.
  3. Although preferred stock is like expensive debt without tax benefits, some companies still use it to raise money. The reasons for this will be discussed in more detail later.

Corporate Finance - post crisis

Musings on Markets • 0 implied HN points • 19 Jan 09
💰 Finance Corporate Finance Investment Analysis Risk Assessment Debt Management Dividend Policy Corporate Finance Investment Analysis Risk management Capital Structure Dividend Policy
  1. Investment analysis will shift to more probabilistic methods rather than just relying on expected values. This means looking at a range of possible outcomes instead of one average guess.
  2. We can expect higher risk premiums for both stocks and bonds in the near future. This change is due to increasing uncertainty, especially in both developed and emerging markets.
  3. Companies will focus on having more cash and be cautious about paying dividends. They might prefer flexible options like stock buybacks instead of committing to regular dividends.