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No. of Recommendations: 20

facts is facts

you can squawk all day long about retained and reinvested earnings and share buybacks. The fact is- companies that choose to pay an increasing dividend grow faster.

There is an interesting individual coorleation to this. When you look at people who go to church... those who tithe a regular amount do not have near the financial problems as those who do not. The more optimistic among the holy flock point to this as indication for divine blessing. The more earthly explanation is sadly less celestial. People who are able and willing to part with a small portion of their earnings are better money managers in the first place and more carefully marshall their finances.

It prob also true for general charitable giving at large but I'm not aware it's been studied.

I'm sure Chuck has covered this but the whole reason to own stock is money returned to the stockholder. In the end... the very end... all stock appreciation is driven by the anticipation of future payouts to owners. Once you cease to value dividends, both present and future, you enter the realm of baseball cards. There's a fairly reliable relationship between the on-field performance of baseball players and the price of their baseball cards, but it's based on nothing more than a popularity contest - the relationship isn't really based on the on-field performance being monetarily valuable to the baseball card owner. Doesn't matter how well Barry Bonds hits the ball if I can't find a bigger sucker on which to unload his card. In a sense, if I can't ever get my money out of Google (with dividends, not by finding a bigger sucker), it's hard to understand whether I even really own a piece of them rather than a pretty collectible card with their logo on it.

In fact... I could go on... the very nature of stock ownership involved sharing risk in return for a greater slice of return... a dividend that was greater than what could be earned from a loan in return for a "sharing" of risk. You know the WACC (working average cost of capital) is s'posed to be important in a comapny's finances. The WACC is made up of cost of debt... easy to figure... and the cost of equity. Look at a company like EBAY. What is their actual cost of equity... I would argue it's about zero. Why? Because EBAY sold equity to investors and has then taken back all of the profit due that equity through the grant of stock options... to the point that EBAY's core earnings (less option grants)are less than 1/10th reported earnings. EBAY is the poster child for "agency conflict".

When EBAY is required to post core earnings this fall... what do you figure will happen to the share price... it'll be like the little boy who suddenly exclaimed "the emperor has no clothes"

and suddenly the investing world realized that EBAY has no earnings... it gave them all away to the privlidged few who absconded with the silver and gold

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