On Friday, February 22nd, the Paris Stock Exchange broke its session record. Last year, the profits of CAC40 companies soared again. The months follow one another and look the same, fuelling the controversy around dividends paid to shareholders a little more each day. False controversy and error of judgment, according to Jean-Paul Betbeze
When a (large) company pays large dividends, it is to draw attention to its stock so that it can be bought, and therefore rise. But this company also knows that it will be criticized by politicians who will talk about inequality, repeating: “dividends benefit the rich”, not to mention the “experts”, even worse, who will explain to us that in this way the shareholder alone gets richer. But both forget that the company disburses this money that belongs to the shareholder, after the distribution decision.
Moreover, against those who say that dividends enrich the rich, it is forgetting that multimillionaires have better things to do than buy a stock that yields 5%. €3 dividend for a Total share that is priced at 59, while they get more elsewhere or through arrangements! Squeaky.
“The dividend is an internal ATM”
Above all, elementary finance, dividends are a transfer from the company’s cash register to yours. It was money promised by the company based on its results through the funding you gave it by buying a stock. We hadn’t been told! However, the real mystery of this operation is the same as that of withdrawing from an ATM. No one thinks that this operation will not reduce their bank account: the dividend is an internal ATM.
The recent case of Total, which distributes billions of euros, illustrates this mechanism and the multinational is being criticized. What, more money for the rich taken from poor people! What, a capture of rent (coming from the exploitation of this fossil fuel) and which pollutes the world, when all this money could help local populations and reduce pollution! But without shareholders, this oil would have remained at the bottom. A dividend is a transfer where the company distributes a share of its profits to those who made them possible, taking risks. Of course, the dividend payout is not naïve: the company says it will do at least as well afterwards. As a result, a very large part of the dividends received will be immediately reinvested in share purchases… Total. It should come as no surprise if the share price rises: shareholders will be even more loyal because they have understood the message.
Thinking about the post-oil era
It’s the same logic that works for share buybacks. And here we find Total, with billions promised over several years. It is a question of increasing the loyalty of shareholders in order to support the dual policy of de… – and less – … carbonation. It involves photovoltaics, hydrogen or wind power. Total is not isolated in its approach, but it is undoubtedly more advanced than its major competitors.
Using the results of oil to do without it: strange masochism! In fact, the distribution of dividends does not go without a debate on investment choices in favor of the post-oil era, knowing that it is always necessary to invest to maintain existing wells, more in future energies. For the time being, the majors’ profits are at an all-time high, with $36 billion at Exxon Mobil, $28 billion at Shell and $21 billion at Chevron and Total, but there is no guarantee that their desire to be carbon neutral by 2050 will be met, given the fierce competition between them. The billions invested in the post-oil era go against those that enable the oil of today and tomorrow: they are far more profitable and certain. Distributing dividends to decarbonise, in addition to the moral judgement that can be made on the commitment, the support of long-term investors, pension funds and sovereign wealth funds (Norwegian in particular), is not self-evident. It is part of a contest of speed, where… Petrobras has announced that it will be last! So should we slow down the effort?
Paying a big dividend is to win the global race against oil, but thanks to it. An idea… to explain!
