There are companies like Google and Amazon (off the top of my head) that don’t pay dividends along with many smaller/mid-size growth companies. Due to that fact, their stance is they use extra cash (or current cash) to fund growth. Their stock price will not plummet because they have more cash to fund growth and continue to not hand out dividends.
And those countries with a lower rate than us–how do you suppose they will respond to our rate decrease?
Slightly different circumstances don’t you think, what with the economy going over a cliff in 2008/9? Deficit spending at that juncture kept the Great Recession from tipping over into a Great Depression of extraordinary–perhaps even existential–proportions. People forget just how precarious our situation was back then. For example, it is my understanding we were about one week from losing all commercial aviation in this country. As in, no commercial flights at all. Consider the economic and social havoc wrought by such a development, multiply it across myriad aspects of the economy, and you will get a sense of the extent of the collapse would have occurred absent the injection of capital into the system.
When one is faced with cost overruns, the normal response is not to slash revenue.
Bingo. The last thing this economy needs is an infusion of liquidity. This so-called tax-reform bill is a solution in search of a problem.
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I think that’s fair and agree with you (at least be revenue neutral!), but lets not pretend either party is going after entitlements as a next step until they have to. They’ve both had the chance and both have kicked the can. Flip a coin for whoever has to bite that bullet.
Counterpoint, with the given that companies are not facing liquidity problems already, and have absolutely no barriers to expansion in that regard, why would you continue to accept the same stock price for no dividends at google when the option of higher dividends pushed from lower taxes opens up across the market.
Imo gutting corp taxes like this will cause a flood of companies that didn’t offer dividends before to being forced to now. Certainly not all (because who’s going to tell Google what to do), but I’m guessing quite a few.
The same reason you are buying google with no dividends right now. Growth. They’ll have more money to grow. You can take the chance that will happen, or go with a steady high dividend stock with limited (or no) growth potential.
I don’t see this happening, but I’m no financial expert. I’m just going of the basis of how the companies currently use excess cash.
I will add that I think it’s odd Google and Amazon consider themselves growth companies, but so far it is working for them. They aren’t listening to me for what to invest in.
Maybe we’re talking past one another. I don’t think the tax cuts are targeting Blue Chips - but the article uses Blue Chips as an example of companies that plan to use new tax cut money to simply pay dividends in lieu of investment. My point is that the evidence points to many other non-Blue Chip conpanies doing the same thing.
Yes, both parties have been can-kickers in this regard. But the current proposed ‘solution’ (increase the debt a trillion dollars by slashing taxes to kajillionaires, then declare ‘we have to pay down this out-of-control debt, and the only way to do it is by slashing payments to old and/or sick people’) is nothing short of an abomination.
And besides, for much of the GOP leadership, this isn’t really about the debt at all–it’s about what they see as the appropriate scope of government. The perpetual adolescent Paul Ryan has always wanted to gut Medicaid/Medicare/SS, because that’s what his hero Ayn Rand would do. Now, reasonable people can disagree on what is and isn’t appropriate vis a vis the scope of government, and that is a debate we (as a country) should have. But the Randians don’t want to engage in the debate–they just want to win it.
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Companies like google may be exceptions as they’re able to just create markets where it didn’t exist before (ala Apple). If you have a much higher infusion of capital but your “growth” or “expansion” doesn’t scale linearly, it shows as a net loss in cash efficiency. Being less efficient with your cash will certainly have an impact on your stock price.
Imo, this will force companies to react in pretty predictable ways. Either they be forced to amp up growth to bring the efficiency back in their favor (not plausible in the case of most companies), increase dividends, or start offering dividends where none existed before.
Then again, I could be completely full of shit. It’s not like Wall Street doesn’t love to deny reason.
Agreed, work is slow this morning
Not surprising behavior.
This is where you lose me. I disagree, and there are a significant amount of companies (as I was talking about with @pfury) that currently don’t pay dividends. I would be shocked if they dramatically changed their company strategy based on this, but who knows what goes on in those fancy board rooms.
I guess you’re viewing the tax cuts as step one of entitlement reform? I wasn’t thinking that way, so that helps understand where you’re coming from. In that view, I agree, pretty dumb way to go about it. I was viewing the tax cuts at face value and not as a lead into a separate issue.
Agreed.
Currently companies will use cash to fund growth or pay dividends. With more cash, I’m betting they will still use it in the same way instead of your third option of starting to offer dividends. I’m using the past to predict the behavior, but could be wrong. It probably depends on each individual company, the amount of cash, what investors want…etc. Don’t get me started on the “true” valuation of companies (value of future dividends) and how little stock price is a true predictor of company value and is more about perceived value (real or not).
Don’t take my word for it:
I would never commit such a crime 
I see one Senator talking about how to cut spending. I view them as separate issues. They are trying to deliver on tax reform. I wish they did it in a revenue neutral way, regardless of the entitlement situation in the future. I don’t believe their intentions are to increase the deficit so entitlements default sooner rather than later, they’re just doing tax reform wrong. We will never know their intentions and I appreciate seeing a different perspective than what I had before. I don’t agree, but I see where you are coming from.
Serious non-troll question: how do we balance the budget and decrease spending as the electorate? Politicians aren’t brave enough. They will never cut absolute $ spending until it’s a crisis.
You think he is a lone wolf on this? No, this is the plan; they’ve been saying it for years. The following is dated, but the outline of the plan is there:
They are trying to deliver on tax cuts promised to their megadonors.
I never claimed they would drive the US govt into literal default; they simply endeavor to make the financial situation so dire as to have ‘no choice’ but to dramatically slash entitlement programs.
Agreed. But this is the route that leads to a lower company efficiency metric that (in a vacuum) sends stock prices down.
Then there’s the wrinkle of making Wall Street investments more enticing and the push/pull that has on the economy and/or average spending in general.
Shit’s probably too complex for the simplistic dumbing down I’m attempting. But small things entertain small minds I suppose.
Bro, they work for us. They’ll totes do it if we demand it.
Additionally(and seriously), let the crisis come. It has to happen at some point. The sooner it comes, the better for our descendants(and us).
This GOP hit piece is hardly evidence of the true intentions of the GOP. If that’s the plan, you’re right. I don’t think it is, but without knowing the true intentions we’ll never know. Let’s be honest, the media and general public hardly ever know the true intentions of politicians.
I didn’t intend to imply you did.
That situation is going to happen regardless of this tax cut. That certainly isn’t justification for not having a revenue neutral tax reform. Ideally the budget should always be balanced, but neither party wants to play that game.
If this is the case all companies would pay dividends. It only makes sense when they don’t have growth opportunities. If they believe the rate of return is better for internal investment opportunities, they will do that. The decision of where to invest, whether to pay dividends, and how much to pay in dividends is not an easy answer… unless you’re a super stable Blue-Chip who can keep doing the same 'ol shtick as the year before.
Probably true on both our analysis. It’s a slow work day so I enjoyed the conversation, that goes for @EyeDentist and @thunderbolt23 as well.
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Not really. They pretty much do what they want once they reach DC. Plus if you poll the electorate:
Do you support a balanced budget and paying off the national debt? = Yes
Do you support a spending cut in (pet program here). = NOOOOO! Why do you hate the poor!? Why do you hate the military!? THE CHILDREN!!!
Sounds like you hate Murica. You should probably leave. #loveitorleaveit #democracy
#allduhfeelz #idonthatepuppiesandkittensandchildren
The absence of dividend paying doesn’t mean the company will use those funds for investment:
"Google parent Alphabet (GOOGL) reported third-quarter EPS and revenue that topped expectations, sending the internet search leader’s stock up in after-hours trading.
Google also announced a new $7 billion stock repurchase plan."
https://www.investors.com/news/technology/google-eps-revenue-beat-ad-growth-slows-no-buy-back/