Tags: Ross | Fink | buybacks | dividends

Wilbur Ross Disagrees With Fink Over Buybacks and Dividends

By    |   Wednesday, 15 April 2015 01:00 PM

BlackRock CEO Laurence Fink caused quite a to-do in financial circles this week with a letter to corporate CEOs criticizing the heavy usage of stock buybacks and dividend increases.

But star investor Wilbur Ross, CEO of WL Ross Holding, begs to differ with Fink.

"There's been about $1 trillion of stock buybacks and dividends in the latest 12 months. What's wrong with that?" he asked on CNBC.

Corporations don't need all of their cash at all times for research and development or capital expenditures, Ross explained.

"What's needed is for boards to make reasoned decisions," he pointed out. "If boards have any sense, the only time they will agree with activist investors [pushing for return of capital] is if there is something right with activists' idea."

The activists usually own 5 percent or less of a company's shares, Ross noted.

"It isn't that they're the new dominant shareholders that [the board] must listen to. It brings their attention to questions they should have better focus on — the capital structure, the cost of capital, how much leverage is appropriate, what kind of dividend is appropriate," he argued

"I think the average CEO would much rather build a new plant than pay a dividend. So it's not that there's an inherent bias on the part of management."

As for Fink, he argues that much of the spending on return of capital to shareholders often isn't in the companies' best interests.

"The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy," he wrote in the letter to CEOs, which he shared with The New York Times.

Instead of focusing on return of capital, companies should stress "innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth," Fink said.

The current policy "sends a discouraging message about a company’s ability to use its resources wisely and develop a coherent plan to create value over the long term," he wrote.

"With interest rates approaching zero, returning excessive amounts of capital to investors" isn’t helpful, because they "will enjoy comparatively meager benefits from it in this environment."

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BlackRock CEO Laurence Fink caused quite a to-do in financial circles this week with a letter to corporate CEOs criticizing the heavy usage of stock buybacks and dividend increases.
Ross, Fink, buybacks, dividends
361
2015-00-15
Wednesday, 15 April 2015 01:00 PM
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