Dividend Doctrine of Investors Liberation Movement
Dividends can and should be paid ONLY when the company has nil debt,
its business outlook is satisfactory, it has "surplus" cash defined as money it
can't productively use in its business, and its stock price is too high to
appropriately repurchase (meaning without making the remaining shares
less valuable fundamentally). Any dividend declaration in violation of these
four conditions is ipso facto NOT in the best interest of shareholders.
If a dividend is paid, it should be done annually to save expense, occur when
the company's cash hoard is most abundant, and timed in a manner to
minimize the tax consequence to shareholders.
REITs generally should not pay distributions exceeding the legally required
minimum of 90% of taxable income following the same timing principles.
Dividents are now being declared by many public companies whose shares are held
by intermediary institutions on behalf of their unsophisticated holders for completely
illegitimate reasons that the unsophisticated holders would never approve if they were
aware of the damaging effects. That's why the First Iron Rule for independent investors
and the slogan of Investors Liberation Movement is "Never buy mutual funds!"
Someday, I hope that I.L.M. can approve mutual funds operated according to
our doctrines because I realize that many ordinary people can't spend the time
to personally manage their investments.
/s/ William H. Brandt, Acting Chair