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Dividend Policy

Hi All,

My firm is currently undergoing a corporate exercise and as part of the exercise we are looking set up a dividend policy. Being that we are in property development, our cash flows can be higly volatile at times so before any firm policy is set just wanted to get everyones opinion on what we should look into prior to doing so, basically determinants of an optimal dividend policy. 

Asides projections and future fcf levels, any other pointers you might have. Or rather how would you go on about this and what would you look at?

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I’d look at the smallest dividend possible coupled with aggressive buybacks 

do you mind explaining further on the buybacks part? why the buybacks? to increase the yield on the investment?

afiqk wrote:

do you mind explaining further on the buybacks part? why the buybacks? to increase the yield on the investment?

You described the business as volatile. The buy backs are a way to accomplish your goal but they are less sticky, meaning when things get bad you can scale it back without the same negative consequences of scaling back a dividend. 

Yes, buyback gives you more flexibility on scale and timing. They’re also more tax efficient for investors.

One could argue that by virtue of the dividend being more “permanent” that it should result in a higher PV of projected future cash flows from the investor’s perspective, resulting in a higher stock valuation. However, given the volatility in your earnings/cash flow, dividends probably wouldn’t be the most efficient way to return capital to shareholders.

Hey Hamilton, have a holly jolly Christmas.

i would pay a tiny dividend but then offer buybacks and special dividends when times are really good

"You want a quote? Haven’t I written enough already???"

RIP

stock buybacks depends on stock price and future company performance. if a stock is cheap relative to earnings then it is a good buy. it is an even better buy if earnings were to grow. buybacks essentially rewards shareholders that sell and punishes current shareholders with a weaker balance sheet but a greater ownership of future performance.

dividends also hurt balance sheet but it rewards current shareholders which is great. the issue though is taxation, the max tax for dividends in cali for instance can go as high as 50%. so not a smart way to go about rewarding shareholders.

imo, the best way is to invest in project with high roi. if that isnt possible then buying other companies where you have a core competency at lower prices relative to earnings,and if that isnt possible then straight up buying etf index is not such a bad idea imo. you could also lend to other companies just to hedge against inflation and maybe pick up some extra returns. these assets you buy are marked to market and will add value to co.

I love my cheese. I got to have my cheddar.

Buyback and dividend are the same impact. I wouldn’t worry about stock valuation 

same impact from a b.s. perspective. but not the same  from an investor’s standpoint. buybacks you are essentially owning a company that is worth less that has rewarded shareholders that have sold. dividends, on the other hand, rewards everyone equally, but now you have to deal with tax consequences upfront.

also stock valuation matters for buybacks, why would you think other wise?

I love my cheese. I got to have my cheddar.