Maybe I'm not understanding something but why do they consider paying dividends as something bad? They are essentially excluding the majority of businesses using this criteria.
The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid.
This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed.
>The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million.
Translated from: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering...
DKK 60 million is about 8.8 million dollars.
If you have money to pay dividends, you have money to pay back your government aid.
https://www.nasdaq.com/market-activity/stocks/bac/dividend-h...
Otherwise it seems ripe for my company to claim 7 million dollars of aid as unsecured loans, then pay out nice big dividends claiming you are in a strong financial position because you are forecasting lots of business next year, then in 2 years time when the loan repayments become due, go bankrupt.
I think the $8.8 million is too high out of an abundance of caution but I can see the reasoning.
The article doesn't make clear whether they're using past behavior (what they did with previous government aid), present behavior (are they currently a public company established as paying dividends), or future behavior (an agreement not to pay dividends or buy back stock, in order to receive aid).
The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in.
It’s aiming to protect the bottom, not the top.
Of course some banks have recently argued that their dividends are something like debts. They argue that cutting the dividend would cause investors to panic, so they must be essential to the financial system. This is a weird argument, but if you took it seriously you would have to include dividends in their post-2008 stress tests. You would require regulatory approval before they increased the dividend, as you would if they increased their debt-to-asset ratio.
https://www.bloomberg.com/opinion/articles/2020-04-06/a-virt...
It counters "Heads I win, Tails you lose" -strategy where the risk of business is offloaded to lenders while owners take profits. It's common tactic in distressed companies to load the company them with debt and suck the firm try with huge dividends. Lenders are left with nothing when the company goes bankrupt.
Investors are often normal people like you and me, using dividends and the sale of shares to put food on their families' tables.
What you really mean is those "normal people" would have to sell their third car or maybe rent out their summer home without that dividend, which is just fine by me.
Many pension funds pay pensions by taking a dividend from investments.
Not all dividend paying companies are greedy, and not all dividend investors are wealthy.
Getting a dividend for last year's performance is the opposite of providing liquidity. If they get the cash because it was scheduled, they need to immediately put it back. If they take the cash and run, they failed to act in their own interest, and do not deserve to have their investment protected.
C'est la vie.
Stock prices usually drop after a dividend is payed out because each share now represents a claim on fewer assets.
A very small "many." I'd imagine that class consists mostly of highly-placed executives (who can be assumed to be rather wealthy) and some number of people playing the startup lottery.
Maybe at FAANG companies (whose FTE workers tend to be very well off) and some other companies with a startup lineage, but I highly doubt this is very widespread.
I, for one, would frankly refuse a compensation package that was majority stock, unless the salary was already good. It'd be too much like those Enron employees who filled their 401ks with Enron stock -- too many eggs in one basket.
If someone who's otherwise well-compensated complains about missing out on dividends on their stock, I have the world's smallest violin here, ready to play a song for them.
1. They are still paying your salary, and
2. They are still granting you stock, but
3. They have suspended dividends on the shares you were granted
seems like a reach. I'd definitely be interested in reading about it if someone actually tries it, though!
But I don't think it's an obligation. Not sure where you're reading that from what I said.
Sock compensation is often discretionary, and dividend payments as well. Not an obligation.
But I'm never argued it was a salary or an obligation. Literally never used either of those two words. I think you're arguing against something nobody said.
It's money you'd be paying a person. It doesn't matter if it was 'like a salary' or an 'obligation' or not. What difference do you think that would make? Preventing companies paying dividends is prevent them paying people. Real people!
But by definition if you have cash to distribute to your owners, you could be using that to pay salaries instead and delay or avoid layoffs and furloughs. So it's very reasonable that a government bailout policy designed to prevent job losses (and not to shore up shareholder value) would incentivize giving money to the people who are targetted and not shareholders.
As your sibling points out:
"The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid."
So it has nothing to do with historical dividend payments - you just can't pay dividends while receiving the state aid.
Now Danske Bank is planning on using those money to secure their business going forward, and we expect some companies to follow this route. Others will go a head with their firings, like Vestas, to make sure share holders get richer.
Now this is not something we actually want in Denmark. I know it’s capitalism, but our most recent election results showed a record support of our social democracy. We’ve never had less support for liberalism (which is our branch of capitalism) than we do now since the end of WW2. So we value people keeping their jobs above shareholders making money.
I personally think we should be even tougher on taxing the rich. If we know companies sit in tax-havens then we should really do something about that, shouldn’t we
However, that is a small minority of all firms and I hope you will find it interesting to learn that many, many small firms' owners (Doctors offices, car dealers, liquor stores, carwashes, etc.) take regular compensation in the form of dividends.
Further, I will point that in the United States, if you are an "S Corp" (and millions are) you cannot, for the most part, carry over liquid cash from one year to the next. You are forced to distribute any leftover cash, typically in the form of distributions to owners (dividends).
That being said, receiving state aid on condition of suspending dividend payments makes very good sense and is the first condition I would add to such aid - you shouldn't need state aid if you are distributing profits.
The only example that I know the reason why is Amazon. [If you buy Amazon stock you either 1) expect dividends at some later stage or 2) plan on selling the stock for a higher price.]
Others avoid dividends, as dividends are profits that are taxed twice. (Once for corporate income taxes, and again for individual income taxes.)
Selling the stock for a higher price has opportunity for favorable tax treatment at the lower long-term capital gains vs dividends taxes as regular income.
Dividends are generally taxed at the long-term capital gains rate, not as ordinary income.
How many stocks in the S&P 500 pay no dividends?
> You are correct that the vast majority of publicly traded companies do not pay dividends.
... is usefully true?
Someone else made the comment that plenty of private companies pay "dividends" (e.g. USA K-1), but a cursory read of the Danish policy indicates that these private dividends are probably not affected.
They don't want to pay out aid to companies that then just hand the aid money out to investors.
I certainly don't think it would be appropriate to bail out a company that's throwing money out the window unnecessarily.