Great to see Ralph Nader write something on the very important matter of dividends and stock buybacks, see, “It’s time for Cisco to cough up shareholder cash.” (Hyperlink visible in full article view) And great to see it published by a mainstream outlet like Reuters. Billions of dollars, if not tens of billions, at companies like Cisco and General Electric for example, are being blown on buybacks while dividends are a much lower priority. Unfortunately, however, Reuters blocked my comment to Mr. Nader’s article. Following is a copy of what I wrote.
Cisco (CSCO) and General Electric’s (GE) stock charts (see 5-year stock chart here) serve as irrefutable empirical evidence of the disconnect between the intended but unattained increases in share prices via buybacks versus the unrelenting support of them by top brass and friends (board directors) — meantime they can count on cheerleading of buybacks by a good mix of apathetic and uninformed investors and asset managers, and gratuitous reporting by the financial press. All the while one constant is the further enriching of the corporate executives and board directors.
I empathize with Mr. Nader and the dissatisfied shareowners he mentions. In my case, as a longtime shareowner of General Electric, I have watched the stock price crater and the dividend along with it. While both have increased from their atrocious drops — to as low as the $5/share price level in the case of the former, and a 68% cut for the latter — the stock buybacks were ironically suspended at precisely when GE should have been buying back hand over fist. Now, reinitiated, some buybacks are costing shareowners as much as twice the market price of GE’s shares, since reducing share count in the face of heavy options grants is much easier said than done. (This reflects the deleterious tendency of (pro-) cyclicality in stock repurchases — companies repurchase more stock at higher prices as earnings increase and often fail to buyback much or any at cyclically low prices.)
GE’s case is worse than Cisco’s in my opinion because GE actually had to sell $12 billion of stock at deflated prices to raise capital during the financial crisis; it sold another $3 billion of preferred shares on very generous terms to Mr. Warren Buffett’s Berkshire Hathaway.
Good news is that I have submitted a shareowner proposal calling for GE’s board to reconsider the company’s dividend policy, including consideration of paying a special dividend. GE’s corporate and outside counsel have tried to conjure up every way possible to receive SEC approval to be allowed to omit my proposal from its proxy statement and annual meeting. However, the SEC was not fooled by GE’s circular logic and false claims, and has ruled that GE may not omit my proposal (although GE is appealing using the same false claims).
Proxy statements and corporate governance are unfortunately not on enough investors’ minds nor getting enough attention in the financial press, but the fact that GE must include my dividend proposal and now with Mr. Nader penning this piece about Cisco’s “paltry” dividend and its reluctance to increase its dividend meaningfully while still buying back billions of dollars of stock, will hopefully raise more awareness among all types of investors. Here’s to a productive, active (voting), and successful 2012 proxy season!
*This article was edited for clarity and formatting purposes. Originally posted as a comment to Mr. Nader’s opinion article on Reuters, the latter did not approve my comment. However, I kept a copy and am sharing with readers here.