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View Diary: Rush Limbaugh's downward spiral promises to accelerate (173 comments)

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  •  Measuring share price decline of CCO (18+ / 0-)

    clear channel outdoor holdings (CCO) paid a dividend of $6.083 per share on March 15, 2012.

    When a company pays a dividend, its stock price decreases to reflect the payment of the dividend.

    CCO's share price was $14.36 prior to the dividend and its current price is $4.97.

    One cannot properly compare those two prices without accounting for the value of the $6.083 dividend.

    If you received the dividend, today you have total value of $11.053 (stock price + dividend), or 23% less.

    If you bought after the dividend was paid, your purchase price would be $8.28. In that case, your current loss is about 40%.

    In either case, you wouldn't be on the fast track to the Forbes 400, but the decline is not quite as bad as the "two thirds" mentioned in the diary.

    •  semantics (13+ / 0-)

      The diary states that "the stock price for Clear Channel Outdoor Holdings has dropped by two thirds." That is a fact, and can be verified at the link.

      When you say,

      the decline is not quite as bad as the "two thirds" mentioned in the diary
      ...i think you're implying that the diary states something it does not state.

      That said, thanks for the contribution, it is useful information.

      Follow me on Twitter: @denverunionguy

      by Richard Myers on Wed Jul 25, 2012 at 12:28:54 AM PDT

      [ Parent ]

      •  Math, not semantics (18+ / 0-)

        If Company XYZ is trading at $10 and declares a 2 for 1 stock split, such that the total number of shares outstanding doubles, the price per share would be cut in half to $5.

        If someone then wrote that XYZ's share price declined 50% since the split, that would be true but substantively, grossly misleading. Yes, the price declined but the shareholder now owns two shares at $5, for a total value of $10 and not a 50% loss.

        Similarly, in measuring investment returns, one must account for the dividends.

        If Company ABC, trading at $20, pays an $8 dividend, the share price will decline to $12. One could say that the share price declined 40%, but that would be an incorrect presentation of the investment return. In this case the investment return is zero, because the shareholder had $20 of value before the dividend (one share at $20) and the same value after the dividend (one share at $12 plus the $8 dividend).

        So, returning to Clear Channel Outdoor, presenting a share price change without accounting for the dividend is not a proper presentation of the investment return, particularly when the dividend caused the price to decline 40%.

        Believe it or not, I am trying to help.

        Regards.

        •  I have never heard this mechanism before (7+ / 0-)

          High finance is far from a personal forte, so excuse me if I come across dumb. But I have never ever heard of this concept before. I have heard of the P/E ratio, which compares dividend earnings against the const of investment (i.e. the share price)

          Furthermore this flies directly in the face of everything I have been told about the free market. Exactly what authority is forcing down the share price by the dividend amount? It is my understanding that "market price" means "what people will pay". If a robust company looks promising to pay large dividends in future years the stock price will remain high. Again, what authority is reducing the stock price, or, what is preventing the market from running the price right back tothe original point or higher.

          To me the diarist is not misleading at all. The market has estimated CCOH is worth far far less today than it was worth in the recent past. That massive dividend might be why ... but that means the pros know the terrible effect of vulture capitalism and they are de-valuing the upcoming corpse already.

          •  Ex-dividend (7+ / 0-)

            When a company pays a dividend (or more technically goes ex-dividend), the stock price goes down by about the amount of the dividend. That's perfectly logical - if you own an entity worth $10, and that entity pays you a dollar, then the entity will now be worth $9. You are in essentially the same position as before (except for taxes) - you now own something worth $9 and you have the dollar that was paid to you.  

            Normally dividend payments are small compared to the stock price - of the order of a few percent at most. In this case, there was a "special dividend" that amounted to a big fraction of the stock price. So the portion of the decline related to the dividend is not part of the drop in value of the stock.

            I have no doubt the parent company here will not be able to pay its debt in 2016 - they will need some sort of arrangement with their lenders to extend the maturity.

            •  I still do not grok (2+ / 0-)
              Recommended by:
              elwior, kaliope

              When a company with a single factory pays a 5% dividend it is doling out the profit it made from the production from that factory. The company still owns 100% of the factory. It did not sell off 5% of its self. The factory is still there the day after the dividend payment as presumably is capable of generating the same amount of production in the upcoming year. All else being equal, investors can expect the same dividend next year. So why would the cost of investment go down? The more successful a company is, the less it costs to invest in that company? I do not grok.

              •  dividend and stock price (11+ / 0-)

                I don't think newton123 is saying that someone or something goes and mechanically changes the stock price ex-dividend.  I think s/he is saying that the market tends to reduce the stock price, ex-dividend, by approximately the value of the dividend paid.

                The logic here, in the mind of the market, is that the company was worth some amount prior to the dividend. The value of the company includes all assets, including cash. When a cash dividend is paid, the value of the company is reduced by the amount of the cash paid out.

                AFAIK this was not the attitude of the market in days past (say, 40 or 50 years ago) when a larger percentage of investor-owned companies paid dividends. In those days it was felt that a company that paid dividends did so because it was profitable and it would continue to be profitable -- and continue to pay dividends -- in the future.

                And, of course, a large part of the reason the market's attitude has changed is because of the vulture capitalists, who buy companies to bleed them via dividends, whether or not they are profitable.

                I hope this helps increase your grokitude. :)

                •  Yes it does (5+ / 0-)

                  Wall Street like everyone else is cutting things closer to the bone. (Because after all Wall Street drives so much corporate behavior.)

                  This explanation helps because you couch the mechanism in terms of market forces. That makes sense to me.

                  The bottom line then is the diarist is entirely correct. The CCOH price dropped to roughly 1/3rd its previous value after this huge dividend payout because market investors saw that dividend as destructive to the corporations overall value.

                  That is the bottom line and that is the point the diarist was after. Tie a bow on tis we are done.

                  Thank you kindly.

          •  Wall Street Puts a Higher PE on growth (4+ / 0-)
            Recommended by:
            Richard Myers, johanus, elwior, kaliope

            Dividend paying companies are usually, not always (like Apple) at a growth plateau which is why a large dividend like the one's mentioned will reduce the stock price of the company. Sometimes the stock is valued on it's total return which means any share appreciation + dividends.

            Large dividends are usually not a good sign for a company unless it's a Microsoft who had so much cash they declared a special dividend of $3.00 per share. The price of the stock did go down because the share price had stagnated.

            Now-a-days a stocks that pays a 1-3% Dividend is considered a safe long term hold if debt is a percent of equity and other ratios are in-line. You can bet that if insiders hold a large amount of shares that dividend payments will go up. Any company that has to borrow against tangible assets other than cash to pay dividends gets penalized severely. They borrow against cash or other assets when paying a dividend would required them to repatriate overseas cash which would cost 35%.

            Apple calculated it's dividend based on the cash it has in the US. It's overseas cash holdings are in the 85 Billion dollar range. That isn't coming back until some deal is worked out which will happen after the election. Nothing is as it appears. When the bad are so bad that companies that do less bad are seen as good, we know  the slide into the abyss is near.

            That's why Bain's companies get killed in the stock Market or they take them private. They don't care either. The only thing that matters is how much cash they can extract from a company. Rarely , if ever, will a Private equity company try to take the reins of a growth company. It still has share appreciation possibility. They usually go in when the share price has dropped or has stagnated. That's the criteria a PE firm uses to turn businesses into parking lots while walking away with billions .

            They always have been and still are a net minus for the economy. It's still the same unrestrained greed seen in the 80s. It just isn't on the front covers anymore which is fine with the second generation buy-out specialist. They don't need spotlights shining on their work.

        •  That just doesn't make sense to me. I thought (3+ / 0-)
          Recommended by:
          elwior, Nimbus, kaliope

          dividends were paid directly from a company's gain. Or, when a company's share price goes up, a percentage is paid out in dividends.

          Now if the company is bound to pay a dividend, and their stock is in the crapper, then the dividend would reflect as a decline in stock value. Therefore, the dividend would have a negative impact on the stock value. That's because the stock is in the "Don't Buy" (or whatever) column.

          And that's why it's fair to say it has declined in value. The dividend just happened to reflect that decline because the stock value was stalled.

          No?

          Romney - his fingernails have never been anything but manicured.

          by Pescadero Bill on Wed Jul 25, 2012 at 08:55:33 AM PDT

          [ Parent ]

          •  I'd like to make three observations... (5+ / 0-)

            (1) As someone else has already stated, the Clear Channel dividend was rather large compared to normal dividends. Why? Because Bain Capital wanted to extract a significant amount of wealth.

            (2) As a private equity company, Bain Capital has numerous properties to manage, and is always seeking to acquire other properties. The 2.2 billion dollars extracted from Clear Channel likely had more to do with some other acquisition that Bain Capital wanted to make, than it had to do with Clear Channel itself. As the ultimate owner, Bain Capital (and another private equity corporation they're partnered with) make all the final decisions. Thus, the special Clear Channel dividend likely made a few very wealthy people ever more wealthy, while not benefiting Clear Channel in any way. That is what the game is all about. (How would you like to work for a corporation where the primary well-being of your corporation is second to the welfare of the people who own it? That's a common circumstance in the world of private equity.)

            (3) We tend to use the terms private equity, and venture capital interchangeably. There are companies that do both, but generally speaking they're not considered the same thing. Venture capital generally refers to starting up, or nurturing new companies. Private equity firms typically deal in existing corporations that are in decline, are in or are facing bankruptcy, or are just ripe for the extraction of their value. Some companies survive the process, many do not.

            A recent article about venture capitalists claimed that they don't like it when the media refers to private equity firm Bain Capital as a venture capital firm. They didn't want to criticize private equity firms, but they see their own mission as something more noble.

            Follow me on Twitter: @denverunionguy

            by Richard Myers on Wed Jul 25, 2012 at 10:27:22 AM PDT

            [ Parent ]

          •  PB - No (0+ / 0-)

            "let's talk about that"

            by VClib on Wed Jul 25, 2012 at 12:11:25 PM PDT

            [ Parent ]

          •  Have you heard "Sitting on a Pile of Cash"? (3+ / 0-)
            Recommended by:
            elwior, Richard Myers, kaliope

            Recently there has been talk of a lot of companies sitting on piles of cash. When you purchase a company you get not only all of its physical assets but all of the company's money as well. If a company has a million dollars in cash it should be worth at the very least a million dollars. If that company decides to pay out half a million dollars in dividends, it is now worth half a million dollars less then it did before it paid out the money. The current investors have had their share of a half million paid out to them. Well they go to sell the shares they are going to be worth less because those shares no longer include partial ownership in that half a million dollars.

            Normal companies only pay out dividends when they have so much money floating around they really can't figure out any use for it (having it make more money for them) and believe that they are going to continue to make even more money. This is a sign of a fully matured company which has little to no room for growth so it is currently looked down upon by Walls Street. Once upon time it use to be the desired goal for all companies. Healthy dividend paying companies general have very constant rates of payment and those ongoing payments are calculated into its stock price.

            The dividend payout by Clear Channel was not the sign of a mature company. It was a clear sign of a troubled company being looted. It is no surprise that it triggered a huge stock drop as the company not only has less assets but is taking on  additional debt and has left itself with little room to maneuver.

        •  True for mutual fund distributions..... (2+ / 0-)
          Recommended by:
          Richard Myers, kaliope

          Not true for stocks.When a stock pays a dividend, the share price does not reflect that payment by an equal reduction in it's closing price.

    •  accomplished (3+ / 0-)
      Recommended by:
      OleHippieChick, elwior, kaliope

      by borrowing heavily from a sister company.

      That smells.

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