Dividends

I remember the first time I got a dividend payment. It was from Compagnie Financière Richemont. One day in the mail I got a one inch wad of super-complicated foreign exchange forms (the dividend was in Swiss Francs) and a thick glossy catalogue which also doubled as the company financials. Before then I’d only ever traded commodities. I’d perused the forms, briefly. And then decided it was too much work and went back to killing stuff on Playstation.

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Δ We may have lost the cultural revolution… but we have a baseball team on our money.

The second time I got a dividend it was infinitely more exciting than the first. Post event I decided that maybe I liked this dividend thing after all. Money sorta just appeared in my account and I didn’t have to do anything. Who doesn’t like free money?

Wait… what exactly is a dividend?

A dividend happens when a company makes sooooooooo much money that they don’t actually know what to do with it. Like when they sell a pair of shoes that cost them 10 rupees and a sandwich to make but what they’re actually selling is a fictional narrative for $165.  At some point during the year the head honchos all get together and, after strippers, blow and some self-congratulatory back slapping, they ink out a corporate strategy on the back of a napkin and then decide to distribute all that money to shareholders. 

I jest. Sometimes they do this in a smoky walnut panelled room at a country club. 

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Δ Plastic surfer-money. From the country that brought you MasterChef. And Steve Irwin. Not pictured. RIP.

I suppose it depends on what sort of investor you are. Or maybe how you feel about how you make your money. If you even care. I tend to flip-flop between liking dividends and then not liking them.

Declaring a dividend, for me at least, is often a sign of poor management. People so devoid of imagination or work ethic that instead of reinvesting that money in the company they would rather just give it away. It underscores a huge problem in the higher echelons of the corporation. The top management is unlikely to be around for the next cycle. Generally speaking when you’re at the pinnacle point in that environment you are also nearing your expiry date. You need to make hay while the sun shines. If the company doesn’t have enough reserves for the next trough, that will be someone elses problem.

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Δ Be the change you want to see in the world – Mohandas Gandhi.  Also these are not my sandals.

And so, companies pay dividends. Its a double edged sword. Sure I like that ‘free’ money. But I would also like it if the company I owned shares in took that money and did something constructive with it. Ie. Diversified its income streams to be a more robust earner, bought back some of its shares, bought a competitor or even just saved that money for a rainy day.

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Ultimately we as stakeholders live for the day and we would much rather eat the cupcake now than have the promise of two cupcakes later. Thats just how we roll.

This blog post was inspired by StealthyWealth who upsets me with his continuous optimism and cheery disposition. I can’t really fault him on anything else though.