Tags: Yglesias | dividend | shareholders | buybacks

Slate's Yglesias: The Case Against Dividends

By    |   Wednesday, 18 December 2013 07:31 AM

Corporate dividends are on the rise, notes Slate business and economics correspondent Matthew Yglesias, pointing to dividend increases recently announced by GE and AT&T.

While most investors are probably happy, Slate's Matthew Yglesias blasts dividends as "bad for the economy, bad for business and surprisingly unfavorable to investors."

"A barbarous relic of a less financially sophisticated era, they're also indelibly coated with misleading rhetoric that perpetuates sloppy thinking about business, profits and investment," he says, mocking corporate statements that praise dividends as "returning value to our shareholders."

Editor’s Note:
Opinion: Retirees to Be Hit With Social Security Cuts

"When firms pay dividends, nobody is returning anyone's money," he asserts.

Owning a company's stock means owning part of its assets, including its profits and cash, Yglesias explains calling distributing profits to shareholders through dividends "somewhat perverse."

Shareholders get money but they also see their claim on the company's assets decline. Plus, shareholders must pay taxes on the income.

Dividends do little to spur the economy, as most shares are owned by the richest 10 percent, he adds.

"We're left hoping that rich shareholders will spontaneously develop enough appetite for extra yachts to push the economy forward. It's a broken economic model that only deepens the disconnect between the stock market recovery and the ongoing labor market slump."

Share buybacks are a better option, Yglesias argues.

Buybacks can increase the value of remaining shares and give shareholders the chance to cash out by selling stock. "It's like a DIY dividend for those who need fast cash."

With stock prices high, however, buybacks may now seem unappealing, he notes.

Corporations could also increase hiring, upgrade employee training, increase pay and bonuses to retain their best employees and cut prices to build customer loyalty.

"That's how profits lead to rising incomes, and how rising incomes lead to demand for the stuff businesses sell."

Many investors will surely disagree with Yglesias and continue seeking stocks paying healthy dividends.

"I like buying healthy, high-yielding stocks of companies that have a commitment of returning cash to shareholders," says Steve Weiss, a New York City public relations rep, according to Reuters. "It's like tapping into a gold mine."

The new ProShares' S&P 500 Aristocrats exchange-traded fund, which holds "dividend aristocrats," S&P 500 firms that have increased their dividends ever year for at least the past 25 years, has dividend investors in mind.

"It appeals to two things investors are looking for, outperformance and low volatility," says Michael Sapir, CEO of ProShare Advisors, Reuters reports.

Editor’s Note: Opinion: Retirees to Be Hit With Social Security Cuts

Related Stories:

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
InvestingAnalysis
Corporate dividends are on the rise, notes Slate business and economics correspondent Matthew Yglesias, pointing to dividend increases recently announced by GE and AT&T.
Yglesias,dividend,shareholders,buybacks
449
2013-31-18
Wednesday, 18 December 2013 07:31 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved