Forum Archive Index - November 1999

["Mark Hubbard" <mhubbard@es.co.nz>]

Rini, to give you my own thoughts on one of your points, re risk of shares
with no dividend.

By this I assume that you referring to implications on share valuation
(determined by risk/return) - whether or not a company pays a dividend will
influence the type of investor who buys the share, but not the valuation of
the share.

A company can do two things with its earnings, distribute them in the form
of dividends (so passing on income earned), or it can reinvest in itself to
grow the company (leading one would hope to capital growth in the value of
the share).

Thus, for myself, for example, I am in the top tax backet with my income, so
I prefer companies with a low or nil dividend policy (because as a long term
non trading investor I prefer capital growth), rather than those that
distribute dividends (despite imputation meaning that I'm not being taxed
twice on that companies earnings). But this does not necessarily influence
the value of the share. The company is still producing the same return, its
just a matter of what it does with its earnings.

Well thats my thoughts at least.

Regards Mark Hubbard


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