If a company like $DIS trades at 18x earnings and 2.4x BV, why pay 25% of profit to a taxable investor who loses 23.8% to federal tax (possibly 43.4% depending on next week), To now reinvest my remaining after-tax $76.20 per $100 in dividends received (or $56.60...) 1/
I have to pay the 2.4 premium to BV, a 5.6% adjusted yield to a 13.3% ROE. If the company instead keeps the profit, and with ALL $100 dollars can buy back shares at the 5.6% earnings yield, retire debt if it’s excessive or expensive, make attractive 2/
acquisitions, or invest internally in at attractive returns, isn’t the investor better off? If $DIS, continuing with our example, earns 13.3% on equity & has projects available for investment that may earn perhaps ~20% returns, why pay a dividend that’s taxed, or at all? 3/
If those internal return opportunities or attractive acquisitions don’t exist then look to the share repo. If the shares aren’t undervalued to a conservative appraisal of value then look to retire debt. If you like the cap structure then let cash build. 4/
If the cash position becomes large and the above remain true then look perhaps at a special dividend?Enjoyed the conversation as always with @JMihaljevic and @pcordway. Missed @ElliotTurn this week. Fun discussion on dividend policy and on forecasting & prediction. 5/5

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More from @ChrisBloomstran

25 Oct
Too many managements will tell you the shareholder earned $2B because non-cash stock-based compensation is not a real cash expense and can be ignored. That may be correct but it’s $1B that the shareholder doesn’t get, insiders do. 1/
You see this in adjusted earnings or adjusted EBITDA presentations. Managements may also tell you they “returned” $3B to shareholders in the form of dividends and share repurchases. On a $20B market cap that’s a 15% shareholder return. All nonsense. 2/
Had the $1B in shares not been given to executives/employees, profit would have been ~$2B (ignore tax treatment). You need to know what percentage of shares outstanding are being granted each year and how many of each type (options/RSU’s/PRSU’s) are outstanding. 3/
Read 21 tweets
4 Dec 19
This thread / debate has been interesting to read. Both sides are partly correct. The AQR paper referenced is a good read and did ferret out the proper conclusion that Berkshire has been rewarded for keeping quality high and price to value low, although beta and (1/22)
(2/22)low price-to-book wouldn’t be the measures I’d use. It drew some questionable conclusions and employed hypothetical, far from real world employable methods. The other side in the thread correctly I think, argued against a factor analysis of Berkshire having much utility
(3/22)but should have reasoned through counterpoints.

I’d suggest, in retort to the AQR paper and conclusion, that Berkshire enjoyed unique tailwinds from 1974 to 1998, and beyond to some extent, that none can replicate and stand to be harmed when trying, ala Greenlight Re and
Read 22 tweets

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