UK Politics
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What? Companies absolutely should borrow and pay dividends at the same time, that totally normal corporate financing. However, companies must also be allowed to fail and cause losses to anyone foolish enough to finance them when they take too much risk.
By definition necessary services like water don't belong in the private sector since we can't allow them to fail. The mistake was not that the company was allowed to pay too many dividends (that's what companies are for). The mistake was that we entrusted this stuff to private enterprise in the first place.
This is the root of the issue. That whole privatization was a scam as well. It was abandoned in the mid eighties because public opinion was so negative and the Tories realised it would be a key election factor. Then, once they got back in, they went ahead with it anyway.
It's self serving and short termist in the worst way. We reap the consequences down the road but still bizarrely, and despite all evidence, the view that the private sector is somehow always better persists among some.
The point, I think, is that it perhaps ought not to be.
Why? Are you not allowed to give gifts to your family until you pay off your mortgage? Paying dividends while using debt financing isn't inherently imprudent. I would have preferred vital services to remain in the control of the state and think the regulators have been laughably weak in allowing these companies to enfeeble themselves to the benefit of shareholders and ultimate cost to society, but demanding dividends not be paid until a company is debt free, in our current capitalist system (and any remotely similar system) is financially illiterate.
Your analogy is a little off. If I were in the slightest danger of defaulting on my mortgage, you may be assured that even my closest family would be getting handwritten free hug vouchers for christmas.
It's not about being debt free, it's about not using your debt for stupid things.
Right but if you were not in any danger of default they would think you a dick if you spent nothing on gifts. You're moving the goalposts. The statement was that no dividends should be paid while there is any debt, which as I say is a stupid one.
On the contrary, I'm putting the goalposts back where they were before you misunderstood them.
From the article:
Read the thread you're commenting on mate.
I have no objection to particular instances of imprudent dividend paying being criticised. I specifically rejected this absolute statement.
If they're borrowing, why are they paying dividends? In a non-capitalist society, they would only pay dividends when they're profitable, if they're profitable and debt free.
Because borrowing allows tax efficient financing of operations and business growth. Corporate debt by the way, also allows investors a lower risk way of participating in private enterprise.
"In a non-capitalist society." You mean one in which the joint stock company doesn't exist? Yeah if they didn't exist it would be pretty hard for them to either borrow or pay dividends.
Not trying to make a normative point, but society as it really exists (not some utopian counterfactual) and our legal system makes it very hard for them to do anything else. It would be weird and likely catastrophic if a corporation was like "we're going to deliberately screw over our share holders to pay back our bondholders even though it will probably result in poorer value service to customers because it would dramatically increase our cost of capital".