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Comment by btilly | Hacker News Reader

This is true. However 5 years ago the same could be said for a number of other tech companies including CISCO, Oracle, and Apple. Yet all have since paid dividends or done stock buybacks.

The market operates under the assumption that all other companies that stay profitable long enough will eventually do the same. And as long as management is seen as competent, is indifferent about whether "eventually" comes tomorrow or 20 years from now.

For an extreme example, the markets have long rewarded Berkshire Hathaway for its growth in profits, even though no money was returned in any way to investors for 40 years. (There has since been a small buyback.)

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Dividends are only one way to value to companies. If Apple fired everyone tomorrow and stopped selling products, their stock would still have value because of the cash (and real estate, etc) they have on the books.

Buffet basically assumes that he is a better investor than his shareholders and by not paying taxes twice (corporate and individual) on dividends he will do better investing the profits and growing book value than his shareholders. Pretty good assumption so far.

Actually, no. Dividends don't give companies value. (In fact every time you pay one, your stock price drops by the amount of the dividend.) They return value to shareholders.

Yes, you're right about Buffet. And because the market is indifferent about when money gets redistributed, they are happy at this point to pay around $100K/share despite those shares having value tied up in a company that has shown very little willingness to distribute any earnings to investors.

Don't forget that employee stock compensation also involves repurchasing shares off the market - which means some of the company's earnings do make it back to investors.

Actually I will try to forget that, because it is wrong.

Many companies have the ability to cover employee stock compensation by issuing more shares. This dilutes existing ownership rather than returning value to investors.

If you want your eyes to glaze over, http://www.sec.gov/rules/final/33-8048.htm describes the SEC rules for how public companies need to tell their investors (who also generally own the company) what the risks are that their share of the company will diminish due to new stock being created for things like employee incentive plans.

Of course if you're an investor, your eyes shouldn't glaze over. Because we're talking large sums of money. For instance for Google in Q1 of 2013, we're talking something like $697 million of value transferred from existing investors to employees. (Search for "SBC" in http://investor.google.com/earnings/2013/Q1_google_earnings.... to see where I pulled that figure from. I won't guarantee that I read the filing correctly though.)

I think that when a founder is no longer at the helm, companies have to do more mainstream things when it comes to appealing to wall street.

This is exactly what happened with Apple.

Wall St doesn't mind if it takes 5 years or 50. As long as they know how to crunch the figures for current value, and can speculate about future revenue.

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