Intelligent Investor Chapter 19 Summary: Shareholders and Managements : Dividend Policy

Shareholders and Managements : Dividend Policy

  • Shareholders don't seems to exercise their voting rights when management isn't doing well or misusing money.
  • Dividends: Many companies don't pay these days and if paying, it's quite low. They assure that reinvestment is going to increase earnings, growth and thus share price.Superior oil is the best example who actually showed  high profits through reinvestment and paid shareholders well after few years. But this is not always the case. Just the rumor of possible dividends from a company is rising the price. Shareholders ideally should demand pay outs or clear cut demo that reinvested money has provided satisfactory results.
  • Stock dividends and stock splits: Stock split restructures the common stock and is ideally intended to establish a lower price for shares. Stock split can be done by stock dividend which involves a transfer of sums from earned surplus to capital or by a change in par value. Subscription rights offer discounts to existing shareholders instead of dividends. But except for stock split by change in par value(2-1 split would divide a 100$ share to 2 shares each of worth 50), remaining are rare today.


  • Vote on proxy material which states agenda of company, disclosures including transactions among insiders.
  • Companies like Microsoft, Oracle etc all store a huge reserve of profits without redistributing them among shareholders.
  • A company should buy back shares when price is low, but what happens mostly is they are bought when price is too high rising the price of stock even more. Stock options give tax benefits to companies. As many stock options are issued, new shares need to be issued to increase outstanding shares. But this will lead to price decline. To avoid this, companies can buy back shares.
  • High pay and millions of shares(Steve Jobs-20M shares) to CEOs.


See Intelligent Investor Summary for other chapters summary.


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