Oogles And Googles of Cash
October 18, 2007 at 8:43 pm
Google earned $1.07 billion in profit last quarter. What should the company do with all that cash?
Here’s a proposal: Offer a dividend to stockholders.
Imagine the boost it would give to the economy. Google arguably has more power to move markets than the Federal Reserve and Ben Bernanke. Google’s influence on the stock market is more than the holdings individual stock owners, of whom precious few were able to get in at the $85 offering price. By now its stock is a main component of many mutual funds, spreading its impact to many more people. Maybe not of the level of GE or Exxon stock, but check out your mutual funds in your retirement account. You’re likely to see Google stock everywhere.
Nowadays, when Google does well in the market, we all do well. So why offer a dividend? Simple. It would be a symbol that it’s a maturing company that recognizing its importance to many investing Americans. That would boost the stock even further over the long term. And frankly, what else can you spend one billion dollars on?
richarda said,
October 18, 2007 @ 10:05 pm
More ammo for the troops?
Tudalu said,
October 19, 2007 @ 3:53 pm
Google is yesterday’s superstar. The new multimillionaire-creator is VMWare.
Jason Van Steenwyk said,
October 19, 2007 @ 3:58 pm
Google should cut a dividend to stockholders if, and only if, they believe they cannot put that money to work at a higher expected return than their shareholders can.
Actually, if Google cut a dividend, that might - MIGHT - be seen as a bearish sign for Google, since investors thought they were buying into a company that planned on reinvesting aggressively for growth. That would be the only reason I’d want GOOG at these prices.
If Google cuts a melon, they become just another S&P500 stock. Well, if its dividends I wanted, I’m more likely to snag a nice bank, like WM or BA or C, at a much more reasonable valuation.
Google is way too fashionable right now.
Tom Grant said,
October 19, 2007 @ 4:44 pm
Anyone could have bought the stock at 85$ and certainly for under $100 per share. Wish I had.
rob sama said,
October 19, 2007 @ 4:51 pm
“Actually, if Google cut a dividend, that might - MIGHT - be seen as a bearish sign for Google, since investors thought they were buying into a company that planned on reinvesting aggressively for growth. That would be the only reason I’d want GOOG at these prices.”
Is Google started issuing dividends, their stock price would PLUMMET!!! That’s because their stock price isn’t justified by their earning power, or the NPV of their ability to pay dividends. The Google stock price is only justified by the belief that they have the ability to do SOMETHING with the cash that will generate extraordinarily higher returns than they currently are. That may be via growth, or a new product offering, or a series of acquisitions.
If Google gives back cash, then they’re saying they have no more ideas of what to do, how to expand. Shareholders would rightly sell off.
Seriously, Google giving out dividends? It’s really not a very bright idea…
Charlie Sierra said,
October 19, 2007 @ 6:38 pm
Um, sorry but you guys are financial morons.
The first rule of corporate finance says that profit is an opinion and cash is a fact. Thus anybody with any knowledge of finance knows that profit and cash are nowhere near the same thing. Profits aren’t required to pay dividends, only cash.
Sorry but somebody has to set the record straight.
PS. Please dont ever advise people that a PE ratio is a meaningful ration. tia.
Clay said,
October 19, 2007 @ 6:59 pm
What Jason and Rob said.
People don’t invest in Google to get dividends. They invest in Google b/c they believe that the share value of the stock will rise and that they can then sell at some later date to make a profit.
The reason, more or less, that companies pay dividends is b/c they either aren’t pursuing growth or b/c they believe that they have maximized their growth potential.
Jason Van Steenwyk said,
October 19, 2007 @ 8:57 pm
Charlie Sierra,
Take it up with Warren Buffett and Benjamin Graham. They’ll tell you the exact same thing. Wanna call them morons?
If a company issues a dividend, they’re telling you they can’t beat the market with your money…at least with that portion of earnings they return to shareholders.
Put another way, grasshopper, if you could make your stock price go up by issuing dividends, everybody would do it and nobody would reinvest capital.
Watch who you’re calling “morons,” kid. There are some people out there who can think beyond the bumpersticker catchphrase.
Jason Van Steenwyk said,
October 19, 2007 @ 9:08 pm
Oh, and Charlie Sierra,
Cash has never been required to pay dividends. C.f. “stock dividends.” More rarely, other companies have issued warrants. But stock dividends were extremely common - especially when marginal income tax rates were higher, since a cash dividend creates a tax liability NOW, whereas a dividend in the form of stock allows the shareholder to control when he realizes the tax liability.
“Please don’t ever advise that P/E is a meaningful ration [sic]”
Dude. Post your portfolio.
I’d like to short it.
Twit.