Thursday, February 14, 2008

Comcast: Stuck on Stupid 
I can't figure this out for the life of me:

Comcast Corp. announced plans for its first dividend in nearly a decade and committed to a timeline for buying back nearly $7 billion in stock, a salve to investor complaints the cable giant isn't friendly to shareholders.

The moves Thursday come as Comcast's stock price has withered and just a month after one of the company's biggest investors accused Comcast of a litany of missteps and called on the company to commit to shareholder givebacks, including a dividend.

If the stock is so damn undervalued that it makes sense for the company to commence a share buyback program, announced ahead of time, then why on earth is it issuing a dividend at all?

The only good reason to stick shareholders with the tax headache of a dividend - ESPECIALLY where there is no history of a dividend before - is because the company cannot figure out a way to invest that money internally at returns greater than that expected of the market as a whole, or greater than the risk-free rate of return - however you slice it.

But obviously, that's not the case here. By buying back its own shares on behalf of shareholders, Comcast's management is saying that they believe that this purchase will generate superior return on investment as compared with, well, anything else they can think of, consistent with their overall tolerance for risk.

Now, since Comcast hasn't paid a dividend before, we know that nobody bought Comcast stock as an income investment with growth potential. And we know that Comcast thinks its stock is undervalued, or they wouldn't commit their capital to buying it back.

Which raises the question: Why are they screwing their investors with a dividend in this particular instance? Why not take the cash and buyback additional shares?

Why even announce it? All you do is drive up the stock and lower the expected returns of your longtime stockholders?

In this case, according to the Wall Street Journal, Comcast is committing a full third of its cash flow to the dividend.

If Comcast is correct that its stock is undervalued, well, what an atrocious waste of capital.

Enjoy those taxes, suckers!

Splash, out



The only good reason to stick shareholders with the tax headache of a dividend

It's Comcast. Their business model is predicated on screwing people over, starting with their paying customers. Why should the investors expect less?
Stupid semi-related question--have you heard anything about the recent troubles government-backed and muni paper? I'm hearing of canceled auctions and missing underwriters. Sounds somewhat scary, and a possible setup for a completely unnecessary panic attack.
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