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

bloomberg.com

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

#41

Post by rsync »

_se wrote: post #10
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.

No, they are not. The vast majority of companies do not pay dividends.

You are correct that the vast majority of publicly traded companies do not pay dividends.

However, that is a small minority of all firms and I hope you will find it interesting to learn that many, many small firms' owners (Doctors offices, car dealers, liquor stores, carwashes, etc.) take regular compensation in the form of dividends.

Further, I will point that in the United States, if you are an "S Corp" (and millions are) you cannot, for the most part, carry over liquid cash from one year to the next. You are forced to distribute any leftover cash, typically in the form of distributions to owners (dividends).

That being said, receiving state aid on condition of suspending dividend payments makes very good sense and is the first condition I would add to such aid - you shouldn't need state aid if you are distributing profits.

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

#42

Post by ethelward »

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 middle ground between having enough cash reserves to survive for months, and not having cash at all because everything has been bled out in dividends and buybacks; namely, having enough cash reserves to survive for some time, but not for several months.

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

#44

Post by boublepop »

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.

If a company goes “Omg, we won’t make it this year, we need 2 billions in aid just to keep going with business as usual, not even takeing our normal 10% growth into account!?” then the government will still not pay a dime to that company if their “business as usual” includes 15 billion buy backs.

The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in.

It’s aiming to protect the bottom, not the top.

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

#45

Post by Ididntdothis »

elric wrote: post #22
ucosty wrote: post #9

Earlier quoted context omitted.

If a company can still afford to pay out dividends it probably isn't really in need of aid.

It's probably a bit more nuanced than that. Dividends are often scheduled months in advance, based on (for instance) last year's profits. Having made a profit last year, and having promised a dividend months before corona doesn't mean you won't be struggling now.

Is the promise of dividends binding? I don’t think so.

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

#46

Post by chrisseaton »

ucosty wrote: post #9
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.

If a company can still afford to pay out dividends it probably isn't really in need of aid.

Paying a dividend is paying a person. It's like you're saying that 'as long as they can afford to keep paying employees' they don't need aid. Would you rather they stopped paying people but didn't take aid? The whole point of the aid is so they can keep going and keep paying people.

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

#48

Post by JoeAltmaier »

boublepop wrote: post #44
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.

If a company goes “Omg, we won’t make it this year, we need 2 billions in aid just to keep going with business as usual, not even takeing our normal 10% growth into account!?” then the government will still not pay a dime to that company if their “business as usual” includes 15 billion buy backs. The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they sti…

I think of it more as somebody trying to hold a raft together, spread-eagled on the deck hanging onto the mast, the tiller, the log decking, hoping the storm passes and it all hasn't broken up yet.

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

#50

Post by rsync »

nokicky wrote: post #18
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.

The thinking goes: A business should have enough cash to weather a storm. If you've paid out cash you have more than enough to weather a storm (and therefore don't need money). If you need money and have paid out dividends than you shouldn't have, you didn't have enough cash reserve.

No, that's not the thinking at all.

As your sibling points out:

"The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid."

So it has nothing to do with historical dividend payments - you just can't pay dividends while receiving the state aid.

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