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Denmark: No aid for companies which pay out dividends or are reg. in tax havens

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Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#31

Post by gruez »

toomuchtodo wrote: post #23
chrismeller wrote: post #21

> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen a…

Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.

>If you didn’t keep enough cash on hand [...]

This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#32

Post by gfodor »

The dividend rule is dumb. Companies who pay out dividends are actually more responsible businesses, who return capital to shareholders. Just because they generate profits doesn’t mean they are also not in need of aid to maintain operations. Certainly it makes sense to prevent them from issuing future dividends based on aid, but why a businesses ability to return profits to shareholders implies anything about their cash flows sensitivity to covid is beyond me. Not to mention, this rule will give aid to profitable companies who chose to not return those profits to shareholders, an additional bizarre distinction.

That’s not to say bailout money shouldn’t be restricted, it just seems like a dumb rule. Why not delimit it based upon a company’s behavior, such as excessive risk taking or over leverage? The companies that were not anywhere near robust to financial shocks deserve to die, but dividend issuance seems a poor way to select for these.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#33

Post by MrBuddyCasino »

chrismeller wrote: post #21

> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen a…

> Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary.

Shareholders should not just profit from the upside, but eat the downside too, which his exactly what this is. You can't take the dividends, claiming "I took all the risks", and then expect the state to bail you out. No upside without downside. Skin in the game.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#34

Post by nabla9 »

Nextgrid wrote: post #2

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.

Dept payments before dividends is just a one way for a lender to secure their loans in limited companies.

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.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#35

Post by toomuchtodo »

gruez wrote: post #31
toomuchtodo wrote: post #23

Earlier quoted context omitted.

Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.

>If you didn’t keep enough cash on hand [...] This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?

There is a wide expanse between running your business razor thin as a profit extraction machine and keeping 12 months of cash reserves. This policy simply looks upon the former as a poor choice.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#36

Post by Saaster »

smnrchrds wrote: post #26
chrismeller wrote: post #21

> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen a…

I think the "in tax havens" part applies to "pay out dividends" as well. Perhaps someone who speaks Danish can refer to the official sources and confirm?

Firms applying for Danish state aid must promise not to pay dividends or make share buy-backs in 2020 and 2021. Companies would be allowed to pay dividends again if they pay back the aid.

This makes perfect sense, otherwise it's a textbook case of socializing the losses and privatizing the profit. Paying dividends (and stock buybacks) is a trade-off that companies make, that makes the company less resilient. Risk/reward needs to work in both ways, both in terms of gains as well as losses.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#37

Post by chrismeller »

toomuchtodo wrote: post #23
chrismeller wrote: post #21

> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen a…

Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.

No, I don’t think the two are the same. Like I said, dividends are usually the “salary” an employer takes at the end of the year. It could be $1, it could be $100,000, but it all depends upon how the business did. This is exactly how everyone is constantly complaining that a business should be operating - pay all the employees, then the owner/CEO/etc. takes part of what is left over.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#39

Post by crazygringo »

I understand the sentiment behind no aid if you're paying dividends (if you have enough money for dividends then you clearly don't need aid), but I don't see how it can be defined in any way that seems even remotely fair.

Is it whether you paid dividends recently in the past? Because remember businesses are supposed to pay dividends -- and you could have been profitable enough to pay a dividend in January but now deep in losses -- and whether they paid dividends in any particular recent timeframe can be fairly arbitrary.

And if it means being prohibited from paying dividends for a period of time going forwards, this seems similarly arbitrary -- basically any business can just pause dividends, then as soon as the time period expires, and immediately or gradually pay the previous dividends they didn't.

Coming up with any useful definition for whether a company deserves aid or not, short of whether they're actually filing for bankruptcy, is already incredibly difficult, but basing it on dividends is beyond simplistic. Different types of businesses have such wildly different patterns of savings and cash flows they're extremely hard to compare or draw any kind of line between "responsible" and "irresponsible" companies.

Re: Denmark: No aid for companies which pay out dividends or are reg. in tax havens

#40

Post by virvar »

Nextgrid wrote: post #2

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.

I’m Danish so I can chip in who this is targeted at. A few of our larger corporations like Danske Bank (the one from the money laundering scandals) aimed at paying out its stock owners 8,50dkr per share while simultaneously planning to fire hundreds of employees to pay for their mishaps and Covid problems. Other companies that are less evil planned similar things.

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

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