Forum Archive Index - August 2000

["Warner Lamb" <cloud9@i4free.co.nz>]

Catch 22 indeed. Look at the critisism levelled at Telecom with regard to
the line maintainance (RIL talked about this). Tel have been one of the most
generous of Div payers on the NZ market if not the world (90%+)..compared to
similar co. overseas, you would be lucky to get 40%. First they are accussed
of dividend stripping and then they are accussed of not maintaining their
network properly. The punters (read: retail investors)are going to rerate
the company downwards if the % payout of divis falls but the experts
(analysts) and larger US investors will probably rerate them upwards as the
cost of organic growth (retained earnings) is far more attractive to a co.
in a growth industry that has many opportunities to put them to use. Now the
fact that you have invested in the co. in the first place should suggest
that you believe management to be more capable to grow your wealth than you
can?. I think the Div/Retain arguement goes back to your risk profile and
your lifecycle phase ie. are you in the Accumulation/ Consolidation or
Spending phase. This has alot to do with your perception of this
arguement..what are you personally seeking at this point in time rather than
from a fundamental fact that retained earnings are the lowest cost source of
equity finance as there are no issue or underwriting costs (there are also
less costs with regard to compilance ie. cheques and postage etc). As Graeme
points out, he has PFI as a long term hold with a good div but also has ADV
as a trading stock and is willing to forgo a Div based on growth (fitting
somewhere between the Accumulator and the Consolidator). I think TEL did get
caught sleeping and are now trying fast to get back on track...and  again
there are many opportunities for them to grow again now that the
internet,broadband,wireless age has come, they need financing to grow new
opportunities. I see a div drop for TEL as positive because I am an
Accumulator and my risk profile is higher. A Consolidator may see it
negatively or neutrally.
The main point is retained earnings are the most cost effective way for a
co. to grow. The US perception of this is that a large % Div payout by a co.
in a growth area signals poor management, like they have run out of ideas
for further shareholder wealth. Tel in my opinion have left it far to long
and are now finding it hard to cut the cord.
Warner


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