General

Re: Investor's Corner

Malachi — Sat, 17 Nov 2012 18:07:32 GMT

Even if google never pays dividends, the ownership share is valuated at (assets minus liabilities) divided by number of outstanding shares, the total of which is discounted by the valuator's distrust in the management and the time it would take to legally take posession of those assets in the event of liquidation. This is because someone who wished to acquire those assets would have to purchase enough shares to compel liquidation.

Re: Investor's Corner

z1235 — Sat, 17 Nov 2012 15:02:20 GMT

In case my point was not clear.

Whether, at the moment, earnings/profits are being paid out as dividends or being reinvesed into the company thus increasing its assets (value) is largely irrelevant. What matters are the company's assets and it's ability to create earning/profits with them. If these two grow, the value of the company will grow, the value of your 1% ownership will grow, and with it your ability to find willing buyers for your shares (at higher prices) going forward.

The control part is being over-rated. People invest in undertakings managed/controlled by other people all the time. You only need to ensure that your incentives are lined up with the incentives of the people in control (typically more assets and more profits). When that stops being the case, you sell, but that doesn't mean that the shares you are selling are worthless.

Finally, if the controlling owners of Google decided to buy gold with the earnings instead of paying them out as dividends to shareholders, would a 1% share ownership in Google (i.e. its assets) be worth $0?

Re: Investor's Corner

shackleford — Fri, 16 Nov 2012 05:35:02 GMT

Don't people make money when they sell their shares, having bought the shares at a lower price?

Re: Investor's Corner

z1235 — Fri, 16 Nov 2012 05:17:45 GMT

Dave, would you sell a 10% (or any other non-majority vote) share ownership in your hot-dog stand company for $0?

Re: Investor's Corner

Smiling Dave — Thu, 15 Nov 2012 20:42:49 GMT

I guess things are clearer to everyone now. We all see, I hope, that the question is not what products Google has in its magic bag, or how to vote my single vote, but rather when they will they finally open their wallets and actually pay a dividend?

In their eight year existence they have not done it once, and everyone but the powerless shareholders is doing just fine. What evidence is there that they will start paying dividends next year, or in the next five or ten years, or ever?

Re: Investor's Corner

grant.w.underwood — Thu, 15 Nov 2012 20:13:17 GMT

cporter - good post and i agree with all that you said, but 2 things. 1st - their products 'suck' and you are underwhelmed with what google is doing. We have opposite views on this nor do i think we can even debate it since its really just subjective. the 2nd thing though - 'i see that starting as they more aggressively monetize their current properties'. I'm taking to mean that you are seeing resistance in the market for google products/services. Do you have an example? are you speaking specifically on a certain aspect of the company like the monetization of advertising on google or mobile?

i wouldnt recommend google either yet. i do however think it is a very important company to watch in the near and distant future.

You say that you do direct investments and there are better places to put your money.

are you direct investments relatively small? and if so how does someone go about doing it?

and do you have recommendations on what better places to invest?

Re: Investor's Corner

Al_Gore the Idiot — Thu, 15 Nov 2012 19:46:53 GMT

These charts better illustrate the inverse correlation between stock indices and dividend yields:

DIVIDEND YIELD:

S&P 500:

Re: Investor's Corner

Al_Gore the Idiot — Thu, 15 Nov 2012 19:32:32 GMT

If you purchase a stock based on dividends, you are after it's income. If you purchase a stock for it's capital gain potential, then you are speculating.

Robert prechter, author of Conquer the Crash, on dividends:

If no divident is ever paid, of what value is a share of stock? Do you really want to own a super-successful enterprise that handsomely pays everyone involved in it except you, an owner?

Historic dividend yield chart of the S&P 500:

Dividend yield tells you how overvalued or undervalued stocks are. Note, steep market declines occur when yield are low and buying opportunities occur when yields are high.

Re: Investor's Corner

cporter — Thu, 15 Nov 2012 19:10:55 GMT

I love Smiling Dave's posts in this thread. :)

I do a fair amount of direct business investment. When I invest in one of these businesses I am getting my money back plus some additional money at an agreed upon rate. I weigh the risk of them being unable to actually earn the money needed to pay me when deciding whether to finance the project or not. This is not unlike buying a dividend stock.

Not too many years ago there was this thing called a beanie baby. You could buy one, and you made money if you could find someone in the future who was willing to pay more than you did. Chances are this person bought it hoping they, in turn, could find someone in the future who was willing to pay more than you did. At constant levels of demand this would even appear to work, due to inflation. When people stopped giving a crap about beanie babies, however, it turned out that they were only worth their asset liquidation value (a bag of beans and some cloth). This is not unlike buying non-dividend stocks.

So there you go, dividend stocks are businesses, and non-dividend stocks are worthless bags of plastic pellets.

On a more serious note, the idea behind non-dividend stocks is that the owners reinvest the earnings to fuel faster growth than they could while paying dividends. There are two possible "cash out" possibilities: They switch to dividends in the future, or they get purchased. In either case the new buyers or the new dividends are based on the current, larger company earnings and not on the smaller ones you bought the company for.

So the questions become: Will my non-dividend stock company get bought, or will they switch to dividends in the future? And am I buying near the top of their growth so I don't get much extra payout if either of these things happen?

When I look at what Google is doing I am underwhelmed. Most of their products suck and/or are poorly monetized. The company has no customer service and has been riding on their good name from an earlier era for years. That will go away eventually, and I see that starting as they more aggressively monetize their current properties. They keep having personal privacy scandals. They are (sadly) under threat from antitrust cases in the US and Europe.

I see a company with most of its growth behind it, which means most of the deferred gains are behind it as well. If you bought at the beginning of 2010 you would have made something like 2% per year for the last three years. They did just come off a huge rally, so if I'm charitable and assume you sold at the top of that you would have made 7.2% per year. 7.2% while banking on hindsight timing isn't so hot.

Would I recommend Google? No way. There's way better stuff you could do with your money.

Re: Investor's Corner

gotlucky — Thu, 15 Nov 2012 18:59:34 GMT

grant,

SD is making the point that any one particular shareholder, especially one with few shares, has no way of getting any $$$ from holding stock in Google. He would need a majority (or whatever amount of votes are necessary, or the board of directors, w/e) to decide to pay dividends. So unless you plan on buying a majority share in Google, you aren't gonna get any dividends. That is what leads to SD's point about Google stock being pointless to hold on to - you aren't getting any money out of owning it.

Re: Investor's Corner

grant.w.underwood — Thu, 15 Nov 2012 18:14:56 GMT

Sounds like you are setting me up!!! or do you really n ot know? or are you going to say that the logic behind voting yourself dividends is highly improbable (just as your one vote for president doesnt matter either) and therefore the notion of buying a share on that idea is absurd too?

*before someone makes me look silly. the shareholders ultimately decide the board of directors and they are the ones that manage whether or not dividends are paid. It all depends on the company's appointment structure. Some have shareholders elect a nominee committee and then they vote for the board, but you are indirectly voting for people who will either try to build the company as much as possible, find a medium of growth and dividends, or pay as much dividends as possible. Or you would have a direct election of the board and can either vote in person or one has the ability to proxy there vote (release your right to vote to someone else who will vote for you)

Re: Investor's Corner

Smiling Dave — Thu, 15 Nov 2012 17:39:03 GMT

Grant,

I'm missing something. Please tell me in detail how I can vote myself a dividend. As with z, I'll show exactly where I'm stuck.

Step 1. Buy shares of Google.

Step 2. Wait for annual meeting.

Step 3. Please tell me what to do now. I really could use a dividend. I guess it involves voting for one, and then I will get it automatically, but I'm not sure how to get enough votes to defy the wishes of management, who own a majority of the shares and thus win every vote no matter what I do.

I await enlightenment.

Re: Investor's Corner

grant.w.underwood — Thu, 15 Nov 2012 17:25:45 GMT

well you do have a say, one share = one vote. Stockholders vote themselves dividends. Ultimately as it stands the majority shareholders of google is google.

Re: Investor's Corner

Smiling Dave — Thu, 15 Nov 2012 17:18:55 GMT

Can you please walk me through how to take capital out of Google? I'll indicate what I know so far, and where the gaps are in my knowledge.

Step 1. Log into broker's website.

Step 2. Buy shares of Google.

Step 3. Smiling Dave = Google [Google is its shareholders].

Step 4. Take capital out of Google. Here's where I am stuck. Please tell me how to do this, in detail.

The reason I don't see how to do it myself, based on the hot dog stand parable, is that I call the shots with my hot dog stand. But I have no say whatsoever in Google that I know about. Management, a small group of people I will never see or talk to or influence, calls the shots. Please enlighten.

Re: Investor's Corner

z1235 — Thu, 15 Nov 2012 13:06:01 GMT

Dave, shareholders pay themselves dividends (Google is its shareholders) when they prefer to take capital out of their business vs investing it back into it. You could start a business by investing in a single hot-dog stand then use the profits from it to buy a second one. If your personal liquidity (cash) needs are satisfied by other means (income) and if you see benefit in doing so, you could keep buying new hot-dog stands with the profits and build yourself a 3,000-stand empire after twenty years. Are you saying that this enterprise would have $0 value in the market if you tried to sell it after twenty years simply because it has never paid a dividend?