Dear all,
Is paying dividend important?
I am amazed on the argument between Philip and Kcchongnz on the topic: Value of dividend payout against share buyback on below kcchongnz blog comment:
https://klse.i3investor.com/blogs/kcchongnz/207121.jsp
Dayang, how will its share price move next week? kcchongnz
Author: kcchongnz | Publish date: Sat, 18 May 2019, 7:23 PM
Posted by (US/CHN trade war doesn't matter) Philip > May 18, 2019 7:50 PM | Report Abuse
Malaysian investors are weird. They look down on companies that do buybacks and overly value dividend payout. They should understand context, buybacks when the intrinsic share value is low and debt paring vs dividend payout (or even borrowing money to pay a dividend) is key in raising long term value
Posted by (US/CHN trade war doesn't matter) Philip > May 19, 2019 5:15 PM | Report Abuse
I see. I own 2 shares of class A brk. It has never given me a dividend. Does that mean it is a negative signal, the management is unwilling to share the profits of the company? I hope not.
Posted by (US/CHN trade war doesn't matter) Philip > May 19, 2019 6:01 PM | Report Abuse
Your implied it that way. I may have received the info wrongly then. Apologies. I believe a company should only give out a dividend if it is under to use the money more efficiently than the shareholders. If the interest rates are high, using capital on debt reduction is far better than dividends. If the share price is far far lower than book value or peer value, buybacks are worth much more than dividends.
Posted by kcchongnz > May 19, 2019 11:33 AM | Report Abuse
In investing, there is no one size fits all.
Buyback shares when the share price is undervalued is definitely good for the company and the shareholders. However, not all managers buy back shares because they are undervalued, but rather for their interest such as jacking up share price because they own a lot of shares or share options. I prefer management buys more shares with their own money.
The very basic of the capital market is investors provide capital for company to do business, and the investors got return in term of regular dividends, from the free cash flows of the company, not from borrowings.
Dividend is never a bad thing in investing. It is a testimonial that the company is doing well, that the management is willing to share the profits of the company, a positive signal. Dividend is hard cash which investors can use it as they like; to buy more shares of the company, or other more promising companies, or spend it to enjoy their fruits.
My opinion: I do not think Malaysian Investors look down on companies that do buyback but they value more companies that pay a consistence dividend.
And by the way Company Act 2016
https://www.ssm.com.my/Pages/Legal_Framework/Companies%20-Act%20-1965-(Repealed)/aktabi_20160915_companiesact2016act777_0.pdf
Subdivision 6: Dividends
131. Distribution out of profit
131. (1) Subject to section 132, a company may only make a distribution to the shareholders out of profits of the company available if the company is solvent.
(2) The company, every officer and any other person or individual who contravene this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or to a fine not exceeding three million ringgit or to both
132. Distribution only if company is solvent
133. Recovery of distribution
I refer to below link and let (CSRC) chairman to explain the important of paying dividend.
China Securities Regulatory Commission (CSRC), Chairman Liu Shiyu's Speech at the 2nd Assembly of CAPCO Members' Representatives
http://www.csrc.gov.cn/pub/csrc_en/Informations/phgall/201706/t20170608_318016.html
Thirdly, commitment to cash dividends. Paying cash dividends is the primary way to return wealth to investors, the underlying duty of a joint-stock corporation, and the source of a stock's intrinsic value. Investing in stocks is said to have eyes on the future. As long as a company has growth potentials, its stock price will rise and bring returns to its shareholders, regardless of paying dividends or not. This notion is only partially right. But the returns here are not profits generated by the issuing companies but gains from trading at premium. If a listed company never offers cash dividends, trading of its stocks is nothing but a speculative rolling game, the one like passing flowers until the drum beat stops, not to mention the uncertainties in a company's growth. A company who chooses not to pay dividends but to expand blindly by taking on new project may fail to pay in the future when these projects go south.
Listed companies are allowed to withhold dividend payments if it is for long-term considerations and with approval by the shareholders' meeting. However, indefinite and unjustified withholding is not acceptable. In international practices, steady and stable cash dividend payout often signals financial health and operational soundness of a listed company. In other words, sustained failure to pay dividends for no reason could be signals of accounting fraud or internal mismanagement. There are listed companies who generously pay out dividends. We commend the practice. However, there are also "iron roosters" who haven't plucked a single feature for many years. The CSRC has been noted of this problem. We won't fail to ensure accountability and will respond with firm measures as warranted.
Capital markets operate by rules. There are regulatory red line and bottom line. The CSRC will steadfastly carry the sacred responsibility of investor protection, especially to small and medium investors. Tough measures will be taken to correct market aberrations, punishing the culpables, delisting the failing companies, and cleaning out the riffraff. Whoever breaks the rules will pay a heavy price.
Thank you
P/S: How much Warren Buffett pay himself compare to Bursa Listed Companies CEO pay them-selves? I wish one day SC Malaysia will steadfastly carry the sacred responsibility of investor protection. Meanwhile what you can do is attend AGM and ask the fact finding questions and demand your fair share of dividend.
https://klse.i3investor.com/blogs/Sslee_blog/207141.jsp
