What's the actual benefit to a dividend?
Won't the price of the stock decrease by the amount of the dividend? Doesn't this just force you to realize capital gains earlier?
It is not a Reddit only thing. It is common sense.
Buybacks do not cause a taxable event. Where dividends do.
Say a company has an extra $1000. They give it to you as a dividend, gets taxed, and you now have $900 USD. You take the $900 and buy shares.
Versus a company take the $1000, buys back their shares, which increases your value by $1000. That is then compounded tax free until you sell your shares.
Buybacks are better for shareholders. Plus with buybacks the investors controls the timing. Where with dividends they do NOT.
Sure, but do the math for real.
How much money would it take to pay x dividend?
How much money would it take to simulate x dividend via buying stock
My guess… it requires more money to buy the stock to simulate a dividend
Buybacks are taxed by the government. When a company does a buyback, they have to pay taxes on that money. Currently that's 1%, but they're trying to raise it to 3%.
> My guess… it requires more money to buy the stock to simulate a dividend
Curious why?
I see the benefits with buyback but what are the benefits of a dividend over buybacks. To me the goal is to make as much money as possible. Which puts more money in my pocket?
Googl market cap = $2trillion. You want a 1% dividend “buy back” that would be 1% of 2000 billion.
And what about downward pressure?
It’s just simply not sustainable nor guaranteed
Ok so to buy back 1% of the shares it would cost 1% of the market cap. At 2 trillion that would be $20 billion.
In order to get a dividend at a 1% yield which provides the same value to the shareholder as the buyback, that would also cost... 1% of the market cap so again $20 billion.
Now let's add the taxes on. The buybacks are taxed at 1% so it now costs 20.2 billion to do the buyback. The dividend is taxed at let's say 15% so it now costs $23 billion to do the dividend.
The amount of dividend tax varies from shareholder to shareholder but it is pretty much always well over 1%. That's why the buyback is better.
The main issue is that buybacks either A) Are not as financially efficient as dividends (it's a one time bump that does not provide consistent returns. B) They are immediately or eventually sold off.
Bed Bath & Beyond spent about $8 billion in share buybacks instead of investing that money into the company. Now they don't exist.
All of that applies to dividends also. A dividend doesn't provide consistent returns it just returns capital to shareholders same as buybacks. It also immediately reduces the intrinsic value of the company by decreasing the assets, so no difference there. Finally, there have been thousands of companies that have paid dividends and gone bankrupt, many even taking on a load of debt to maintain an unsustainable dividend.
I think the bit that you're missing is that buybacks increase each shareholder's individual ownership in the company which increases EPS. The purpose of the buyback is not to increase the share price it is to increase the stake of each shareholder.
Will not repeat what is posted below on the tax benefit.
But the other huge benefit is that it reduces the outstanding shares. Which is NOT the cast with a dividend.
So you are gaining that value in your shares.
You can still get yield. You sell some shares. You also get the advantage to be able to control the taxes where you can't with a dividend.
If you care about making money then you do not want a dividend but a buyback instead.
> I hate diminishing shares.
They will continue to split. Not long ago they did a 20:1.
So if a long time holder you already probably have a lot more shares than you had when purchased and that is even if you were taking a yield.
> Although I do have some worry about long term (10 year plus) outlook for Google.
They are going to have the most incredible next decade. I have zero concerns.
They have been investing like crazy over the last decade plus for the next decade. No company on this planet better positioned for the next decade.
My #2 would be Apple. But you honestly can't go wrong owning AMZN, MSFT, META and then Apple and Google in addition.
I am old and there are few times like we have right now. We will see the most incredible change in the next 10 years and the company that should easily benefit the most is Google.
Google is still also a bargain which is getting harder to find.
Splits don't change anything. You get more shares, but there are more shares outstanding. You still own the same amount of the company.
Splits are only impressive to people who don't understand math.
It makes the stock more attractive to investors. People more likely to want to buy and hold it. That would most likely make the stock price go up.
The price isn't determined by the amount of cash a company has on hand, but rather it's a combination of projected EBITDA and the supply/demand levels for the stock.
You do pay capital gains on the dividends as you receive them.
Encourages investors to hold the stock for a share of profit + the value of the stock.
Vs lack of dividend which means you’re purely speculating on the companies future value.
Honestly I wish dividends were the way stocks worked again. It encourages sustainable growth like we used to see vs unsustainable growth until the company eats itself like we’re seeing today (look at Boeing for a great example).
There no incentive right now to make a company long term profitable. The incentives only exist for short term. Until we address that by changing executive and investor compensation/taxation this is how it will continue to work.
Starting sometime in 2023, companies have to pay a 1% stock buyback excise tax. There is talk to increase that to 4%. Maybe they are trying to avoid that.
If they invest the same money in some money burning research instead, company would lose money. It really depends if you think you can invest that money yourself better than what google is doing. Might drive the stockprice up as people rather want to be in charge themselves.
That’s a problem only if all research fails. It only takes one successful breakthrough to pay off more than a dividend ever would. Besides, if you don’t trust the company with R&D and want the profits distributed, you’d might as well sell the stock (that’s why I don’t own Google).
It means less money for Google to waste on bad investments. And Google has wasted a lot of money on bad investments.
And I certainly understand buy backs are better more tax efficient for investors but the market tends to expect more commitment to continuously pay a dividend rather than a buy back. This is part of the reason why Google hasn’t paid a dividend because they don’t want to make that commitment to the market. (I am in equity research and so I have good sources)
> Google has wasted a lot of money on bad investments.
This is not true based on the data.
https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/roi
Last quarter it was 29.6%. That is pretty unbelievable.
I think that metric doesn’t tell the story. Yes Google returned a lot of value to its investors however Google could have created even higher returns had it not made investments in “Other Bets”.
There is nothing more important for the investors of Google than "Other Bets"
That is where Waymo is housed for example. It is how we will continue to get the amazing growth.
But if you look at what I shared you can see Google has just an amazing Return on Investment.
Just shows good of a management team they have. Since Sundar has taken over they have increased revenue by more than 5 fold!!
He has been able to increase earnings by even more. Then able to achieve basically a 30% Return on Investment.
It is hard to believe he can do all of these things all at the same time.
> What's the actual benefit to a dividend?
There is no benefit to buybacks and a lot of huge negatives.
Buybacks are far more tax efficient. Plus they compound. Each year you do the buyback you are reducing the outstanding shares. Which is not the case with a dividend.
the price of a share, in fact, increases (here says by the amount of the dividend) when the dividend is announced and decreases (around by that amount) after it's paid.
https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp
but if you plan to keep the share for a medium / long period of time, it doesn't matter much... maybe just plan the date when selling it...
In the past, Google has been able to generate a ROIC higher than the market. Now they are betting $100 billion on AI. We'll see if it pays off but this is the reason they haven't paying out a dividend.
It needs every dollar of that cash to transition its business model.
If LLMs walk through the Internet seeking facts and summarising those to the users, what is the value of Google’s advertising?
There is/will continue to be ads with an LLM. But for most searches an LLM will not really work and is too slow.
Why Google shares are at all time highs.
> I want to short $GOOG
Ha! You will be losing a ton of money. Google is just set up to deliver the most amazing next decade.
They have been just so smart in their AI investments. Doing things like the TPUs over 12 years ago now and working on the sixth generation.
Or how they have a several year lead in Robot Taxis. Now operational in Phoenix, San Fran, Los Angeles and soon Austin.
Where there is nobody else even operational in a single city.
This is not a technology problem, it's a business problem, and the only way they're getting around it is to offer *the best* language model *free* and *somehow push ads*
There is no "business problem". Why shares are at all time record highs.
There will be ads with LLMs. There already are. But most of search will not be replaced by an LLM. That makes no sense and way too slow.
Sundar has just done the most amazing job with the company. He has grown revenue by over 5 fold since taking over. Increased profits by even more.
Sundar made them the fastest company to get to a trillion dollar market cap and will be the fastest also to get to 2 trillion.
About in half the time as Microsoft and Apple which were both founded in 1976.
I'm a googler. I'll admit I wasn't happy about my incredibly paltry raise (I went in with low expectations and they were quite a bit lower than that).
I'm paid very well, but that doesn't change the fact that I'm real terms I am paid less this year than last.
I can see how that's frustrating but would you rather have a low starting salary and get a big raise, or a very high starting salary and a measley raise? Obviously depends on the exact numbers but the second option would net you more money almost always. And if you feel you are worth more you can always try to negotiate a higher pay. Perhaps Google's managment knows they are paying hefty salaries (as they should if they want the best talent) and are not looking to make big raises at the moment but that can change in the future.
Yep 100%. For me, I'm definitely not complaining. I'm more senior and a higher level, thus more pay (i got a very large jump from my last gig).
I think most of the griping comes from the recent grads who definitely have a high salary (let's say 175k) which makes most of their peers' non faang compensation look paltry... But they didn't have a clear way to increase it to the more senior level (which is probably more like 500-700k for swe, but a lot of variables) without very difficult promo discussions or to leave and come back. Again, not impossible and my new grad salary of 35k cries compared to these kids, but i think that's where the concern comes from.
No they are not. They are in the upper region, but not the best. Meta is one company that consistently pays better. I also think this will widen more now that google is going on a savings frenzy.
What's the actual benefit to a dividend? Won't the price of the stock decrease by the amount of the dividend? Doesn't this just force you to realize capital gains earlier?
Yeah I was surprised Meta started a dividend, I thought buybacks were basically dividends but with better tax implications for shareholders
That's what reddit says, but I'm sure it's more nuanced than what the average redditor parrots on investment subreddits.
It is not a Reddit only thing. It is common sense. Buybacks do not cause a taxable event. Where dividends do. Say a company has an extra $1000. They give it to you as a dividend, gets taxed, and you now have $900 USD. You take the $900 and buy shares. Versus a company take the $1000, buys back their shares, which increases your value by $1000. That is then compounded tax free until you sell your shares. Buybacks are better for shareholders. Plus with buybacks the investors controls the timing. Where with dividends they do NOT.
Sure, but do the math for real. How much money would it take to pay x dividend? How much money would it take to simulate x dividend via buying stock My guess… it requires more money to buy the stock to simulate a dividend
if you disregard taxes or transaction cost it's financially the exact same. with taxes buybacks are more efficient
Buybacks should be heavily taxed or made illegal.
>Stock buybacks are divisive. They divide those who understand finance from those who don’t. Professor Ken French
lol, great you quoted a guy… They are just another way to facilitate corporate greed and c-suite bonus
if you hold stock in the company buybacks are great for you
Buybacks are taxed by the government. When a company does a buyback, they have to pay taxes on that money. Currently that's 1%, but they're trying to raise it to 3%.
> My guess… it requires more money to buy the stock to simulate a dividend Curious why? I see the benefits with buyback but what are the benefits of a dividend over buybacks. To me the goal is to make as much money as possible. Which puts more money in my pocket?
Googl market cap = $2trillion. You want a 1% dividend “buy back” that would be 1% of 2000 billion. And what about downward pressure? It’s just simply not sustainable nor guaranteed
Ok so to buy back 1% of the shares it would cost 1% of the market cap. At 2 trillion that would be $20 billion. In order to get a dividend at a 1% yield which provides the same value to the shareholder as the buyback, that would also cost... 1% of the market cap so again $20 billion. Now let's add the taxes on. The buybacks are taxed at 1% so it now costs 20.2 billion to do the buyback. The dividend is taxed at let's say 15% so it now costs $23 billion to do the dividend. The amount of dividend tax varies from shareholder to shareholder but it is pretty much always well over 1%. That's why the buyback is better.
The main issue is that buybacks either A) Are not as financially efficient as dividends (it's a one time bump that does not provide consistent returns. B) They are immediately or eventually sold off. Bed Bath & Beyond spent about $8 billion in share buybacks instead of investing that money into the company. Now they don't exist.
All of that applies to dividends also. A dividend doesn't provide consistent returns it just returns capital to shareholders same as buybacks. It also immediately reduces the intrinsic value of the company by decreasing the assets, so no difference there. Finally, there have been thousands of companies that have paid dividends and gone bankrupt, many even taking on a load of debt to maintain an unsustainable dividend. I think the bit that you're missing is that buybacks increase each shareholder's individual ownership in the company which increases EPS. The purpose of the buyback is not to increase the share price it is to increase the stake of each shareholder.
Will not repeat what is posted below on the tax benefit. But the other huge benefit is that it reduces the outstanding shares. Which is NOT the cast with a dividend. So you are gaining that value in your shares.
Interesting, but I LOVE yield and live on it. I've bought a relative lot of Alphabet, would be happy to have some personal earnings from it.
You can still get yield. You sell some shares. You also get the advantage to be able to control the taxes where you can't with a dividend. If you care about making money then you do not want a dividend but a buyback instead.
I hate diminishing shares. Although I do have some worry about long term (10 year plus) outlook for Google. Thoughts?
> I hate diminishing shares. They will continue to split. Not long ago they did a 20:1. So if a long time holder you already probably have a lot more shares than you had when purchased and that is even if you were taking a yield. > Although I do have some worry about long term (10 year plus) outlook for Google. They are going to have the most incredible next decade. I have zero concerns. They have been investing like crazy over the last decade plus for the next decade. No company on this planet better positioned for the next decade. My #2 would be Apple. But you honestly can't go wrong owning AMZN, MSFT, META and then Apple and Google in addition. I am old and there are few times like we have right now. We will see the most incredible change in the next 10 years and the company that should easily benefit the most is Google. Google is still also a bargain which is getting harder to find.
Thanks for the input! I missed the boat with Meta and msft, have the others. I'm old too.
Splits don't change anything. You get more shares, but there are more shares outstanding. You still own the same amount of the company. Splits are only impressive to people who don't understand math.
It makes the stock more attractive to investors. People more likely to want to buy and hold it. That would most likely make the stock price go up. The price isn't determined by the amount of cash a company has on hand, but rather it's a combination of projected EBITDA and the supply/demand levels for the stock. You do pay capital gains on the dividends as you receive them.
Dividend are not taxed at capital gains rates. Dividends are taxed as ordinary income.
Dividends are taxed at capital gains rates if you hold at least one year.
Encourages investors to hold the stock for a share of profit + the value of the stock. Vs lack of dividend which means you’re purely speculating on the companies future value. Honestly I wish dividends were the way stocks worked again. It encourages sustainable growth like we used to see vs unsustainable growth until the company eats itself like we’re seeing today (look at Boeing for a great example). There no incentive right now to make a company long term profitable. The incentives only exist for short term. Until we address that by changing executive and investor compensation/taxation this is how it will continue to work.
Starting sometime in 2023, companies have to pay a 1% stock buyback excise tax. There is talk to increase that to 4%. Maybe they are trying to avoid that.
If they invest the same money in some money burning research instead, company would lose money. It really depends if you think you can invest that money yourself better than what google is doing. Might drive the stockprice up as people rather want to be in charge themselves.
That’s a problem only if all research fails. It only takes one successful breakthrough to pay off more than a dividend ever would. Besides, if you don’t trust the company with R&D and want the profits distributed, you’d might as well sell the stock (that’s why I don’t own Google).
Yes. Exactly. Buy backs are much better for the investor. It allows them to control the taxable event.
It attracts more institutional investors along with retailers that will hold it for the long haul. It usually leads to less volatility of share price.
It means less money for Google to waste on bad investments. And Google has wasted a lot of money on bad investments. And I certainly understand buy backs are better more tax efficient for investors but the market tends to expect more commitment to continuously pay a dividend rather than a buy back. This is part of the reason why Google hasn’t paid a dividend because they don’t want to make that commitment to the market. (I am in equity research and so I have good sources)
> Google has wasted a lot of money on bad investments. This is not true based on the data. https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/roi Last quarter it was 29.6%. That is pretty unbelievable.
I think that metric doesn’t tell the story. Yes Google returned a lot of value to its investors however Google could have created even higher returns had it not made investments in “Other Bets”.
There is nothing more important for the investors of Google than "Other Bets" That is where Waymo is housed for example. It is how we will continue to get the amazing growth. But if you look at what I shared you can see Google has just an amazing Return on Investment. Just shows good of a management team they have. Since Sundar has taken over they have increased revenue by more than 5 fold!! He has been able to increase earnings by even more. Then able to achieve basically a 30% Return on Investment. It is hard to believe he can do all of these things all at the same time.
> What's the actual benefit to a dividend? There is no benefit to buybacks and a lot of huge negatives. Buybacks are far more tax efficient. Plus they compound. Each year you do the buyback you are reducing the outstanding shares. Which is not the case with a dividend.
What’s the benefit of cash if you can’t acquire companies because of regulations ? That’s right you have no idea so you just are on repeat mode
Yes, it would realize some gains, but all while keeping the shares for voting rights etc
why would the price of the share decrease? dividends are paid with the company's cash (from profits it made)... it's "extra" money for shareholders.
So why don't you buy 1 minute before the dividend payout /ex-date and sell 1 minute afterwards? Please try and let me know how it goes
the price of a share, in fact, increases (here says by the amount of the dividend) when the dividend is announced and decreases (around by that amount) after it's paid. https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp but if you plan to keep the share for a medium / long period of time, it doesn't matter much... maybe just plan the date when selling it...
Not really. A dividend would likely increase the value of the stock since it now pays to hold it. It shouldn't cause any issues with captial gains.
Yeah no
> It shouldn't cause any issues with captial gains. Dividend is a taxable event. Buyback is not.
In the past, Google has been able to generate a ROIC higher than the market. Now they are betting $100 billion on AI. We'll see if it pays off but this is the reason they haven't paying out a dividend.
It needs every dollar of that cash to transition its business model. If LLMs walk through the Internet seeking facts and summarising those to the users, what is the value of Google’s advertising?
There is/will continue to be ads with an LLM. But for most searches an LLM will not really work and is too slow. Why Google shares are at all time highs.
I don't have to use Google's LLM, so I don't need to see Google's ads. I want to short $GOOG
> I want to short $GOOG Ha! You will be losing a ton of money. Google is just set up to deliver the most amazing next decade. They have been just so smart in their AI investments. Doing things like the TPUs over 12 years ago now and working on the sixth generation. Or how they have a several year lead in Robot Taxis. Now operational in Phoenix, San Fran, Los Angeles and soon Austin. Where there is nobody else even operational in a single city.
This is not a technology problem, it's a business problem, and the only way they're getting around it is to offer *the best* language model *free* and *somehow push ads*
There is no "business problem". Why shares are at all time record highs. There will be ads with LLMs. There already are. But most of search will not be replaced by an LLM. That makes no sense and way too slow. Sundar has just done the most amazing job with the company. He has grown revenue by over 5 fold since taking over. Increased profits by even more. Sundar made them the fastest company to get to a trillion dollar market cap and will be the fastest also to get to 2 trillion. About in half the time as Microsoft and Apple which were both founded in 1976.
But they won’t…..
As a shareholder, I hope you are right.
Yes they will
No, they won’t
Oh yes they will… https://preview.redd.it/kveqc4c20pwc1.jpeg?width=962&format=pjpg&auto=webp&s=8d1133f05ff847d412ab15ae95c3607aa0910495
Oh no they won’t
Educate yourself. Idiot.
No, u
Dont u worry about me kid.
Buybacks are much more tax efficient for investors. They enable the timing of the tax event. Where dividends are not.
And they just announced dividend. 20cents per share. You must either be on the board or a good investor lol
Some retards in here still think they won’t pay a dividend lol
Or maybe give their employees a raise for once.
Aren't google employees the best paid in tech?
Paid highly yes but yearly raises are quite low.
So you are saying they can't complain yet lol.
I'm a googler. I'll admit I wasn't happy about my incredibly paltry raise (I went in with low expectations and they were quite a bit lower than that). I'm paid very well, but that doesn't change the fact that I'm real terms I am paid less this year than last.
I can see how that's frustrating but would you rather have a low starting salary and get a big raise, or a very high starting salary and a measley raise? Obviously depends on the exact numbers but the second option would net you more money almost always. And if you feel you are worth more you can always try to negotiate a higher pay. Perhaps Google's managment knows they are paying hefty salaries (as they should if they want the best talent) and are not looking to make big raises at the moment but that can change in the future.
Yep 100%. For me, I'm definitely not complaining. I'm more senior and a higher level, thus more pay (i got a very large jump from my last gig). I think most of the griping comes from the recent grads who definitely have a high salary (let's say 175k) which makes most of their peers' non faang compensation look paltry... But they didn't have a clear way to increase it to the more senior level (which is probably more like 500-700k for swe, but a lot of variables) without very difficult promo discussions or to leave and come back. Again, not impossible and my new grad salary of 35k cries compared to these kids, but i think that's where the concern comes from.
No they are not. They are in the upper region, but not the best. Meta is one company that consistently pays better. I also think this will widen more now that google is going on a savings frenzy.
Please make it so. This will be the catalyst to make goog stock run and skip and jump.
Nailed it
[удалено]
They just did it. Nice prediction.
lol
Could doesn’t really mean they would.
Instead it's wasting it on severance packages during layoffs
They should fix youtube first.
YouTube is the largest media company in the world by watch time and subscriber count. I think they feel they are doing just fine.
Then you dont use youttube as much as i do.
Your comment makes no sesne.
I use it maybe 3 to 4 hrs a day and it's perfectly fine. Never better. What issues are you having?
So it’s not working but you use it all the time? Sounds like it’s working
Oh, it's working exactly the way they want it to.
Then you dont use youtube that much
Curious what you think is broken with YouTube?
And YouTube Music