No, I’m saying the companies are choosing to pay out now because they estimate that their investors will get less in the future even after they grow it at their rate of return.
So the companies are saying it’s better to give the money to investors today at 15% dividend rates, than invest it and provide a capital gain which will likely be taxed at 20% next year.
In essence, if they’re just going to hold the money to pay a dividend in the future, that future dividend could be taxed at up to 43.4% plus State Taxes.
Which all just boils down to they can’t productively use their available capital.
For example: Let’s say Oracle has $10,000 in dividends they’re prematurely divesting. If they didn’t divest them, they would managing them as an asset. Oracle’s Return on Assets is 11% (let’s call it 10% for easy math). That $10,000 invested by Oracle at their current return on asset rates would generate $1000 of earnings. At Oracle’s current 16 P/E ratio, the $1000 of earning’s is work $16,000 of market cap gain, which is $16,000 stock value.
So $10000 given to you today at 15% tax means you get $8500 and Oracle says that’s better than paying 20% tax on $16,000 of their current return on asset (which is $12,800) or if distributed as future dividends at max tax rate (43.4%), $9056.
So it’s either a knee jerk reaction by petulant CEOs and boards or those companies doing it basically are saying they can’t maintain their return on assets going forward by investing more.
