16 June 2010

Dividends? Retirees don't need no stinking dividends

When I was growing up, table talk could be a boring experience because most of the talk, dominated as it was by my parents, usually involved business, especially finance. I've learned to be grateful for it, especially when listening to politicians.

Of course, it's also the reason I think people like Nancy Pelosi are ignorant. Not because I don't like her policies. Quite the contrary, in fact. I don't like the policies because I believe them to be rooted in ignorance, an ignorance which is a function of both illiteracy and innumeracy.

Take, for example, a report I recently heard on the radio that she believes BP should not pay its stock-holders dividends. Maybe they shouldn't. But her reasoning is the most simplistic crap my parents trained me out of before I'd graduated high school.

BP should not pay dividends because it made $17 billions in profits last year. Actually, it was $16.58 billions. Close enough though.

One of the things my parents taught me about business finance, and understanding profits, is that some amount of money is "a lot" or "a little" only in comparison with some other amount of money, the two amounts being percentages of each other. Pelosi thinks $17 billions is a lot of money because she's comparing it with the thousands of dollars needed by victims of the oil slick. In fact, it represents only a 6.74 percent profit. Yes, I said only. In business, that's not very much. It is $17 billions, in comparison with $246.1 billions in revenue. That $17 billions represents what is left of the $246.1 billions when all the bills are paid.

This isn't to say BP doesn't have a liablity. It is to say that whatever Pelosi thinks BP should pay, and to whomever she thinks it should be paid, it should be paid because it is owed. It should not be paid just because she thinks $17 billions is a lot of money. It isn't. It's a paltry 6.74 percent profit. The company I work for didn't make $17 billions in profits last year. But it did make about 12 percent in profit. Profit is about the percentage of revenue, not the raw dollar amount. And neither the raw dollar amount nor the percentage have any bearing on liability. Would Pelosi entertain the notion, if BP's profits on $246.1 billions were only $1.7 billions, that they could then pay dividends? We know better than to believe that, I think.

I doubt Nancy Pelosi knows, or cares, to whom much of these dividends will go. No one can like everyone on the list, but some of my favorite stockholders are Ameriprise Financial, Capital Group, Prudential, TIAA-CREF, Standard Life, and the State of Texas, among others.

You might want to check your retirement fund. Make sure it doesn't (still) have any BP stock among its holdings.

0 comments:

About Me

James Frank SolĂ­s
Former soldier (USA). Graduate-level educated. Married 26 years. Texas ex-patriate. Ruling elder in the Presbyterian Church in America.
View my complete profile

Blog Archive

Capitalism