Huzzah! Google's Wasting Money By Paying A Dividend
Just wait for the idiots to start shrieking
Google has announced that it’s to start paying a dividend:
Google’s parent company soared past a $2 trillion valuation last night as the search engine giant said it would pay a dividend for the first time.
Shares in Alphabet rose by more than 12pc to a record high as the company announced the payout to shareholders, alongside a $70bn (£56bn) share buyback scheme.
Microsoft shares also rose after the world’s most valuable company revealed record profits. It meant both tech giants shrugged off a tech sell-off earlier in the day triggered by fears about the artificial intelligence (AI) boom.
Alphabet reported revenues of $80.5bn for the first quarter of the year, a 15pc rise, and said profits had climbed by 57pc to $23.7bn.
It said it would pay shareholders a quarterly dividend of 20 cents a share, amounting to a payout of more than $2.5bn, and that it planned to continue paying quarterly cash dividends in the future. It comes after Meta said it would pay its first dividend in February.
As soon as they’re able to clear their throats the idiots will be shrieking that this is just a waste of money. As they do when Shell or BP pay a dividend. That money being paid out to shareholders is just a waste, d’ye see? It should be retained within the company, invested, making the world more productive and all that.
This is, obviously, the idiocy of which I speak.
The first level of stupidity is that companies exist so as to enrich their shareholders. Paying shareholders money could count as enriching them. So, that’s good then. The company is doing what it should; enriching shareholders.
But there’s another and more important level of that stupidity here.
Sure there are problems out there that we’d like to get solved. Quite so that we might well want to use the profits from past successful activities to address some of those as yet unsolved. But to insist that the money’s got to stay within the company that made it is to be, well, have I used the word idiot yet?
So, maybe Google should try to solve climate change for us? After all, they’re not all blue-haired self-identifying as a dragon people, some of them are quite bright (my nephew for example). But Google actually ruled itself out of trying to deal with climate change a decade back. By employing someone who didn’t know what they were doing - even if bright - to write the report on what they might do.
Essentially, they assumed that climate change was going to be bad, really, really, bad and that anything Google might do wouldn't make much difference. So, let’s not do anything. In more technical detail they assumed that RCP 8.5 was business as usual (it isn’t, that’s the one where the oil and gas run out and we turn back to coal, a really, really bad move and also one that’s not going to happen) and therefore Google couldn't achieve anything.
An error in base assumption there. Which might be why we don’t want Google dealing with climate change even if they have already ruled themselves out of doing so. Because they’re not very good at it given that they don’t know what they’re doing.
Which does also give us a hint as to what we do want to happen. We want the investing in solving the next problem being done by those who understand what the next problem is - also, by those who might have a clue as to how to solve that next problem. Which might well mean not the dragon-identifying types. Hey, maybe those are the right people for ad sales - which is the economic heart of Google - but maybe not for climate change?
What we want to happen is the money made by adslingers to move over to people who make fuel cells. Or mine for lithium. Or windmills. Or long distance DC cables. Or spaceships - solar in orbit would be good, no?
So, how might we do that? Well, the profits made from adslinging could be paid out to shareholders. Who could then invest it in spaceships or cables or mines or…..and given that individual investors are betting their own money we might get better decisions than those made by the dragon-identified who get the basics of climate change entirely wrong. You know, maybe.
That is, paying out dividends, doing stock buybacks, is exactly how we do move profits around the economy for them to be invested in making the world a better place.
Which is why the usual shriekers are idiots for opposing it.
There’s also a little bit - after that idiocy - of basic world viewpoint here. Those insisting upon the money remaining within a large company are - you’ll not be surprised to hear this - also those most likely to insist that the world should be run by politics and technocratic bureaucracies. Because they’re really the same worldview. Us out here, us little people - even if it is our own money - can’t be trusted to even understand our own desires let alone allocate capital across different activities. Therefore this should all be done by the right sort of people who got the right sort of degrees at the right sort of universities. Whether they’re within government or coporations doesn’t matter greatly - technocratic experts.
The rest of us, us sensible people, are rather more individualistic. Sure, folk spending their own money on stuff does lead to cucumbers from moonlight stuff but also to WhatsApp - which, we should remind folk, provides telecoms, absolutely and entirely, wholly, for free to 2 billion people.
But back to our basic economics here. Dividends and stock buybacks are how we move the profits of past successful adventures out into the pot to be allocated to the next set of potentially successful adventures. Being against dividends and buybacks is therefore to be against economic growth - for it is, always, the next adventures that produce the growth.
Or, of course, to be against dividends and buybacks is to be an idiot but then we’ve already said that.
The failure to understand the recycling of capital to be better employed elsewhere in the economy is not the only stupidity when it comes to dividends.
Several years ago I found myself in conversation with a friend’s daughter, aged about 18, who had a Saturday job at M&S. She was fulminating about dividends being paid to shareholders when they didn’t in her view deserve anything. She and the other employees worked in M&S, visibly contributing to it, and in return were paid a wage; meantime these parasites who possibly never went near a store also received money just because they happened to have bought a piece of paper with the M&S name on it on the Stock Exchange. They have contributed nothing; why should they get anything when I have to work for my modest wage, was her argument. Cue patient explanation from middle aged accountant on the elements of shareholder capitalism; I think I made some progress but the concepts were clearly all entirely foreign to her. But why should they be otherwise?
What all this shows is that vast swathes of people simply haven’t a clue how business is financed, or even that it needs to be.