Thread by @ChrisBloomstran

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/

https://twitter.com/twiii_podcast/status/1322511668560171015

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