
Maybe Google Should Pay a Dividend - sarvesh
http://gigaom.com/2009/02/21/maybe-google-should-pay-a-dividend/
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ggrot
If google doesn't pay a dividend, profits accumulate as cash which increases
the value of the company (and hence the value of stock shares). In an
efficient market, by keeping the cash, the value of the shares should increase
by approximately the same amount as the dividend would have been. However,
since the gains are the stock price they get taxed as long-term capital gains
instead of income, and they only pay tax when they sell - letting exponential
growth kick in. This means that the investor pays less in taxes.

Personally as an investor, I don't usually like companies that pay big
dividends because it increases my tax liability. I'd rather invest in a
company that has no dividend.

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nostrademons
Sort of. The big question with dividends is "Can the company's shareholders
invest that cash more profitably than the company itself can?" If the company
is just going to sit on its cash and earn 3% in a money-market fund, and yet
its shareholders could invest in other companies that get 20% returns, then
the company should pay a dividend.

In Google's case right now, though, I don't think they should be paying
dividends. The financial system is basically frozen, which means if they need
cash for operations, they need to generate it internally. And Google's value
as a going concern is significantly higher than the returns available in the
rest of the stock market, or even bond interest rates. It makes sense to keep
that cash inside the company, where it can be employed profitably, than to pay
it out as dividends that'll be reinvested in other companies that are much
less profitable.

~~~
danteembermage
It's worth noting that, in theory, an individual desiring a better return than
the 3% the money market is giving them on Google's cash holdings can buy
riskier things on margin secured by their Google stock. Google stock price
should be safer because the cash on hand will provide a lower bound on the
value of the company and so a large margin account is feasible. In fact, if
you borrow exactly the amount that Google would have paid and invest it you
can synthesize whatever cash holdings level you think Google should have based
on your risk preferences and the rest of your portfolio.

This is roughly an application of the Modigliani Miller capital structure
irrelevance theorem for the further interested.

<http://en.wikipedia.org/wiki/Modigliani-Miller_theorem>

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sanj
"Google has said time and again it’s not inclined to do any special favors for
investors, but that’s not true, at least not strictly speaking. The company
reset the price of stock options for employees after declines late last year
left many under water. As Reuters pointed out, Google investors are unhappy
about the double standard."

In this case I completely agree with Google's behavior. Coddle your employees,
not your investors. The latter will do very little to benefit your company.

~~~
admoin
...except provide companies with the equity financing they need to survive
(especially in a frozen credit environment) for nothing more than a junior
level claim on their residual earnings.

