Glenn
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What do you do for stocks that don't pay dividends ?
Hi dcraig1
Just to be clear here - I'm researching rather than knowing.
Perhaps others would care to do the same and make this a TT team effort ? This is not a simple topic with simple answers to all questions, and many approaches to fundamental evaluation have their critics as well as their proponents.
If you want to use the Dividend Valuation method when there is no Dividend, then you could look for a proxy for the dividend.
Whay is the company not paying a dividend ?
- Is it because they want to re-invest their capital ?
- Is it because they prefer to do share buy-backs instead as a way of returning shareholder value ?
- Is is because they don't have the cash to pay out, or are unwilling to take on debt in order to continue paying a dividend?
- Is it because investors are less interested in Dividends than they used to be ?
So for example using the stock buy-backs as a proxy for dividends.
Dividend proxy = Stock Buybacks / Net Income.
If buybacks are irregular then it is better to take the average of them over, say, 4-5 years.
Likewise if the company has long-term debt, then perhaps this should be included in the calculation:
Proxy = Stock buybacks / Net Income - Long-term debt / Net Income.
Glenn