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The Transcentury rip-off
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Nabwire
#11 Posted : Friday, January 06, 2012 9:12:16 AM
Rank: Veteran

Joined: 7/22/2011
Posts: 1,325
Jamani I thought this is a simple concept!! It is genius for companies to borrow with these low interest rates in order to pay off dividends. Its a known fact that corporations are sitting on alot of cash, so instead of using their own money, they borrow at 0%, then instead use their own money to buy back stocks and expand their operations. This increases the value of their companies. I thought this is pretty obvious, Wallstreet Journal should be ashamed!!Its like if you have money then your bank offers you more money at 0%, will you decline ati coz you already have money??
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Nabwire
#12 Posted : Friday, January 06, 2012 9:16:10 AM
Rank: Veteran

Joined: 7/22/2011
Posts: 1,325
Oh its not the WSJ, no wonder!!
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Scubidu
#13 Posted : Friday, January 06, 2012 2:43:19 PM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
Sure wrote:
The Wall Street Journal reports (subscription required) on a disturbing trend taking place in board rooms across America: Public companies are borrowing money to pay dividends to shareholders.

Companies say that they're doing it to take advantage of low interest rates, but here's what's so dumb about that: The low-interest rate environment makes dividends less valuable too because the cash can't be invested at a high rate of return. Worse, these companies are needlessly amplifying risk: The bankruptcy courts are littered with the corpses of companies that paid dividends instead of paying down debt, and the result was that shareholders, workers, and creditors were wiped out completely in the name of a short-term increase in yields.

Need another reason that bond offerings to support dividends are a bad idea? There are tremendous frictional costs. The act of selling bonds to pay cash to shareholders costs millions in investment banking and administrative investments -- and the paper-shuffling act distracts management from finding ways to actually create value.

Borrowing money to pay dividends to shareholders is a high-risk proposition without any meaningful upside -- kind of like jumping in front of a steam roller to pick up a penny (or a Lehman Bros. stock certificate -- or Enron, or Circuit City, or any of the other infinite number of companies that plunged into bankruptcy after taking on excessive debt to buy back stock or pay dividends).

Anyone taking a loan to pay dividends is simply an idiot, shenzi type variety and should not be in a quoted company. Actually, CMA should police on this.


BAT Kenya has been a big borrower for it's dividends. But it probably gets the base rate cos of it's high credit rating. Do you think CMA should shut it down?
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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cd04
#14 Posted : Saturday, January 07, 2012 11:54:42 AM
Rank: Member

Joined: 2/10/2007
Posts: 13
Borrowing money to pay dividends is illegal in most commonwealth countries (at least the ones I am familiar with their corporations acts or similar).
Dividends should only be funded from retained earnings.
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Sure
#15 Posted : Monday, January 09, 2012 9:11:31 AM
Rank: Member

Joined: 9/9/2010
Posts: 546
Location: Garissa
Scubidu wrote:


BAT Kenya has been a big borrower for it's dividends. But it probably gets the base rate cos of it's high credit rating. Do you think CMA should shut it down?


There is no way a company can borrow at zero interest from a bank. Base lending rate is now at over 20% for many banks. Even at 5%, the interest accrued cannot justify declaring a dividend and going ahead to borrow interest bearing cash to pay out as dividends.

I mean, do you see the stupidity of increasing uncalled for costs for the company? Why declare dividends when you don't have the cash? Why not say you will pay the dividends at the end of the year like Sufferingcon does. The board has no obligation to approve dividends to shareholders and pay pronto.

If BAT has been doing that, they should be castigated strongly. The interest paid on the loans should be diverted to dividends.


Wisdom to detect when share prices hit rock bottom.
When interest on bonds keep going up, you know the bear run is on high street. When interest on bonds start leveling, the bear has met the bull and they have hit rock bottom. When the interest rates on bonds start coming down, the bull has overpowered the bear and you better be riding the bull.
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Scubidu
#16 Posted : Tuesday, January 10, 2012 8:17:12 AM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
Sure wrote:
Scubidu wrote:


BAT Kenya has been a big borrower for it's dividends. But it probably gets the base rate cos of it's high credit rating. Do you think CMA should shut it down?


There is no way a company can borrow at zero interest from a bank. Base lending rate is now at over 20% for many banks. Even at 5%, the interest accrued cannot justify declaring a dividend and going ahead to borrow interest bearing cash to pay out as dividends.

I mean, do you see the stupidity of increasing uncalled for costs for the company? Why declare dividends when you don't have the cash? Why not say you will pay the dividends at the end of the year like Sufferingcon does. The board has no obligation to approve dividends to shareholders and pay pronto.

If BAT has been doing that, they should be castigated strongly. The interest paid on the loans should be diverted to dividends.




@sure. Well BAT is not paying zero interest but on lenient terms and off course in this environment it's difficult to do so. The dividend affects cashflows and the decision to increase borrowing to pay the dividend is at the discretion of management.

The dividend is a policy that needs to be maintained (the company and shareholders alike endorses it) and whether or not it's borrowed it's still paid from retained earnings. The BAT board doesn't have an obligation to anything pronto and shareholders haven't disapproved the company paying 100% of earnings.

Even sufferingcon paid it's dividends after receiving a loan (syndicated and from bond proceeds)-it's not a conventional loan but a loan none the less.
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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Sure
#17 Posted : Tuesday, January 10, 2012 8:34:20 AM
Rank: Member

Joined: 9/9/2010
Posts: 546
Location: Garissa
Scubidu wrote:

@sure. Well BAT is not paying zero interest but on lenient terms and off course in this environment it's difficult to do so. The dividend affects cashflows and the decision to increase borrowing to pay the dividend is at the discretion of management.

The dividend is a policy that needs to be maintained (the company and shareholders alike endorses it) and whether or not it's borrowed it's still paid from retained earnings. The BAT board doesn't have an obligation to anything pronto and shareholders haven't disapproved the company paying 100% of earnings.

Even sufferingcon paid it's dividends after receiving a loan (syndicated and from bond proceeds)-it's not a conventional loan but a loan none the less.


What is the purpose of the board (and by extension the company) in the first instance?

a)To make maximum profit.
b)To create jobs and serve society
c)Build shareholders' wealth
d)Pay maximum dividends every year

By the way, borrowing from a bank at whatever interest only benefits the bank, not the company that borrows. Borrowing for the sake of doing so (because the money is available to be borrowed) is the height of insanity that the swines are facing right now in Europe and America.

If Williamson Tea has the foresight of retaining profits for a rainy day to keep dividend pay out consistent and avoid borrowing, why won't BAT do the same?

Maybe, just maybe, BAT pays out almost 100% dividends to avoid class law suites like has happened elsewhere. That way, they have no cash to be raided and to compound issues, they keep their bank accounts on debit (loan). Do you pay tax on loans? Am trying to think outside the box. Was it Scubby doo.
Wisdom to detect when share prices hit rock bottom.
When interest on bonds keep going up, you know the bear run is on high street. When interest on bonds start leveling, the bear has met the bull and they have hit rock bottom. When the interest rates on bonds start coming down, the bull has overpowered the bear and you better be riding the bull.
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Sure
#18 Posted : Tuesday, January 10, 2012 8:45:48 AM
Rank: Member

Joined: 9/9/2010
Posts: 546
Location: Garissa
Did anybody here know that Gachao Kiuna (CEO Tranny) did his undergraduate degree and skipped a masters to do his doctorate in Cambridge? He thus became a doctor at 24 yrs old. Who is his father?

On another note: US consumer borrowing in November 2011 saw its sharpest rise in more than a decade, the Federal Reserve has said.

The jump - by $20.4bn (£13.2bn) - was the largest monthly gain since November 2001.

The Fed's category that measures credit-card debt rose by $5.6bn, the most since March 2008.

The data suggests US consumers are borrowing again...

http://www.bbc.co.uk/news/business-16478419
Wisdom to detect when share prices hit rock bottom.
When interest on bonds keep going up, you know the bear run is on high street. When interest on bonds start leveling, the bear has met the bull and they have hit rock bottom. When the interest rates on bonds start coming down, the bull has overpowered the bear and you better be riding the bull.
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WWW
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VituVingiSana
#19 Posted : Wednesday, January 11, 2012 12:44:50 PM
Rank: Chief

Joined: 1/3/2007
Posts: 18,361
Location: Nairobi
BAT folks are very smart... they know what they are doing... I wish I had kept my shares...

The best consistent dividend payout!
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Scubidu
#20 Posted : Wednesday, January 11, 2012 1:22:47 PM
Rank: Veteran

Joined: 9/4/2009
Posts: 700
Location: Nairobi
Sure wrote:
Scubidu wrote:

@sure. Well BAT is not paying zero interest but on lenient terms and off course in this environment it's difficult to do so. The dividend affects cashflows and the decision to increase borrowing to pay the dividend is at the discretion of management.

The dividend is a policy that needs to be maintained (the company and shareholders alike endorses it) and whether or not it's borrowed it's still paid from retained earnings. The BAT board doesn't have an obligation to anything pronto and shareholders haven't disapproved the company paying 100% of earnings.

Even sufferingcon paid it's dividends after receiving a loan (syndicated and from bond proceeds)-it's not a conventional loan but a loan none the less.


What is the purpose of the board (and by extension the company) in the first instance?

a)To make maximum profit.
b)To create jobs and serve society
c)Build shareholders' wealth
d)Pay maximum dividends every year

By the way, borrowing from a bank at whatever interest only benefits the bank, not the company that borrows. Borrowing for the sake of doing so (because the money is available to be borrowed) is the height of insanity that the swines are facing right now in Europe and America.

If Williamson Tea has the foresight of retaining profits for a rainy day to keep dividend pay out consistent and avoid borrowing, why won't BAT do the same?

Maybe, just maybe, BAT pays out almost 100% dividends to avoid class law suites like has happened elsewhere. That way, they have no cash to be raided and to compound issues, they keep their bank accounts on debit (loan). Do you pay tax on loans? Am trying to think outside the box. Was it Scubby doo.


The board needs to protect the dividend policy. i have a granpa who luvs the dividend he gets every year... no complaints from him since the 80s. BAT don't need to keep money for a rainy day as much as Williamson does (two completely different business models). Do they pay tax on loans... where are you going with that question.... i don't follow.
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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