Braggster
Well-Known Member
You haven't read enough of Miller and Modigliani! Basically though, joking apart, the theory is that a company shouldn't pay dividends to the extent that it can invest each £1 of "dividend" to earn more than £1 in value (properly adjusted for risk, cost of capital and so forth). If it can't do so, it should distribute that money to its shareholders.moomba said:Prestwich_Blue said:Earnings are not dividends. They refer to the company earnings (EBIDTA).moomba said:What is the point of price earnings ratio when they're not paying out ny dividends?
But typically those earnings would get shared with the shareholders.
P/E ratio can be a good guide to what return you'll get back from your investment.
Can't see much value in it if your not giving out dividends other than a good indication that the company isn't about to fall over.
For example, Berkshire Hathaway - run by Warren Buffett - does not pay, and never has paid, a dividend, and that has been the correct decision because Buffett and his colleagues have been able to invest the money that they would otherwise have paid out at very high rates of return, so creating a more valuable business.
Having said that, the reason United won't be paying dividends isn't because they have fantastic internal investment opportunities; it's because their cash flows are too stretched.