This Heikkilä & Vilen episode from a year ago about dividends fits well with the recent big dividend discussion. The video also discusses share buybacks.
4 Likes
Sauli and Verneri talked about dividends:
Listening recommendation for that episode!
10 Likes
The dividend podcast by @Sauli_Vilen & @Verneri_Pulkkinen was good! Maybe it’s not worth praising every single sentence said in a video over an hour long, so rather about a couple of 
-things:
-
Why was Finland’s situation compared to only one other country, the USA? The dividend situation is almost like in Finland, for example, in the Nordic countries, Germany, etc. Finland is not a particularly special country in this regard.
-
Verneri’s BuyBack motorcycle started to wheelie in a couple of places when he said that “with share repurchases, the owner can decide the timing of taxation themselves.” As if the owner couldn’t similarly time the taxation of dividend payments, for example, with a share savings account or insurance wrappers. And when dividends were linked to drinking
And about the latest dividend situation in the USA:
https://www.wsj.com/finance/stocks/dividend-stocks-market-swings-strategy-d8301d88
8 Likes
Here is Jukka Oksaharju’s article related to dividends, which is fitting for this moment as dividend spring is about to begin. 
Dividend spring 2025 is about to begin. The pot distributed by Helsinki Stock Exchange companies to their owners this year may reach up to 14 billion euros. This matter is highly significant, as a long-term investor receives their income stream during the investment period from dividends and comparable capital repayments. In fact, in recent years, dividends and capital repayments have even formed the only positive return element for those investing in the Helsinki Stock Exchange, as the general index has fallen for three consecutive calendar years.
7 Likes
I would like to challenge the idea of a “dividend culture” in Finland or that the Helsinki Stock Exchange is a “dividend stock exchange.”
In practice, the only factors that might interest a dividend investor in the Helsinki Stock Exchange are cheap valuations compared to the US, and the fact that the largest listed companies in Finland operate in very traditional and slow-growing sectors; banking, engineering, telecommunications, forest industry, insurance, etc. The latter feature drives capital allocation in companies more towards profit distribution. In addition to these, share buybacks are not yet considered significant in Finland (although this seems to be changing), and profit distribution is practically limited to dividends. Whether the lack of share buybacks is a characteristic of a dividend stock exchange or vice versa is a different debate. Many dividend investors prefer companies that engage in share buybacks, as buybacks tend to strengthen the dividend per share. Profit distribution is an emotionally charged topic, as seen in this thread, and naturally, the media extracts all possible clicks from how many billions Fortum and Nordea will distribute this year. However, Kauppalehti is not as big as all Finnish investors, and following clickbait headlines gives a distorted view of the world.
In the USA, on the other hand, there are thousands of listed companies. Among these are a vast number of electricity companies, energy companies, water companies, huge consumer brands, REITs, large and growing technology companies that pay dividends, etc. In the USA, companies typically distribute dividends four times a year, and there are many companies that pay dividends monthly. Among these companies, there are many with very high dividend yields. In the US, share buybacks are more popular, and many companies operating in somewhat declining sectors have managed to increase their dividend per share and share value by buying back their own shares. The only factor that truly works against a dividend investor is the high valuation of the stock market, which, however, seems to be more due to the company distribution.
When making a comparison from this perspective, the US stock market appears to be that notorious dividend stock exchange. On the other hand, I find the entire term or label somewhat unnecessary because the market is not a “stock market” but a “market of stocks,” as @Verneri_Pulkkinen kindly reminds us from time to time. Thus, it accommodates many different types of investors. It would be more appropriate to say that the culture of investing in the USA is generally more advanced than here in the Nordics, which manifests as better frameworks for dividend investing.
Now that I’m on a roll, I could challenge the idea that Finnish companies only distribute dividends and do not invest. As I mentioned, the company distribution in the US is slightly different from Finland, and naturally, a large technology company engaged in AI development has greater aspirations and investment opportunities than a bank or an insurance company. I don’t know how much the famous lack of imagination affects this, as opportunities are seized in Finland when they arise. Picking the raisins from the bun, Harvia can be used as an example. After its IPO (2018-2019), Harvia’s dividend payout ratio was close to 100%, and the company was supposed to be a boring dividend company growing at about 5% per year. Then came the pandemic and the rapid growth of the US market. As market growth intensified, Harvia suddenly had clearly good investment targets, and the dividend payout ratio dropped to around 50%. Investors liked this very much, as the dividend per share continued to grow even though the company distributed a smaller portion relative to its earnings. So, dividend-paying companies are not necessarily “mature” but are just waiting for new tailwinds and ideas.
Companies do not distribute dividends because they don’t want to invest, but because clear, good targets are not found. I dare say that companies that do not grow because they don’t want to compromise on future dividend streams are rare. On the other hand, there are many examples of companies announcing a cut in their current dividend because they want to “invest in growth.” Typically, however, this is a cover story for the company simply not being able to afford to pay dividends (for example, Case Kamux).
Should the cash waiting for new investments then be distributed as dividends? Then, expensive loans would have to be taken when those new targets are found? - If one assumes a market return of 8% and the interest rate on loans taken by the company to be, for example, 4-5%, then it could be justified from the owners’ perspective to distribute all possible money out of the company to the owners. Of course, this is not always the situation for a company grappling with these questions, nor is it as smart when taken to extremes as one might imagine in light of the numbers, as companies with strong balance sheets and cash tend to perform better during economic cycles.
I have probably never written this much about dividends in one go, but I hope this provided a few good points related to the topic.
29 Likes
The only pitfall I understand is the forced sale of shares during a general recession, or when a company messes up really badly. Let’s say the company hasn’t paid dividends in a decade, and for some reason, you’re forced to sell the shares at any price. If you had received ten years of dividends, some money would have been left, but even now the stock plummets by tens of percent, so it goes badly. The aforementioned collapse is quite rare, and on the other hand, a forced sale is an investment mistake.
2 Likes
At least someone is at the heart of the matter. In the dividend discussion, things get completely muddled when a direct conclusion about a company’s quality is drawn from the method of profit distribution.
It’s not worth it for a mediocre business to invest significantly in growth, because the expected return can then even be negative. There are plenty of those on average on the Helsinki stock exchange, and in such cases, the correct conclusion from the board is to propose distributing most of the profit.
Of course, if one wants to delve into nuances, one can start speculating whether to pay dividends or buy back own shares. In the big picture, that is quite pointless if profitable growth is lacking in the long run.
If one wants good returns, then one should try to avoid the aforementioned companies as much as possible.
2 Likes
Indeed, a share buyback is an artificial way for a company to increase its dividend. Of course, the dividend will rise the following year even if the profit remains the same. After all, that profit is distributed evenly among a smaller number of shares.
A share buyback is a way for the board and executive management to obscure shareholders’ perception of the company’s profit distribution. It’s like pissing on the shareholder’s legs.
How is it screwing over the shareholder if they receive growing dividends, and likely also profit from changes in the share’s value?
6 Likes
Reading the thread and taking a quiz should be made mandatory for this thread, so that one can write a new message. The same messages repeat quite often.
25 Likes
Yes. Such nonsense was uttered now that I don’t even bother to answer, as it seems to be just a desire to troll.
7 Likes
“I would invest that money directly into stocks, and certainly not into funds. What on earth is interesting about that? What makes investing interesting is when the dividends hit the account.”
-Erkki “O. Sinkko” Sinkko
16 Likes
I linked from another thread because the term dividend and yield caught my eye.
I personally consider dividend yield to be when it’s paid to owners from annual or quarterly earnings, mainly in the long run. If the cash is emptied with huge dividends, I wouldn’t call that a 38% dividend yield but rather a clear dividend payment, i.e., a transfer of funds.
4 Likes
I understand the point, of course, but I would see things a bit differently. However, the term dividend yield has become generally established to describe the relationship between the paid dividend and the market price of the share – regardless of whether it is a “normal” annual dividend or an exceptionally large one-off payment.
What if, for one reason or another, the company is relatively more valuable after an extraordinary balance sheet unwinding? E.g., Mandatum’s share price has risen, even though large amounts of dividends have been distributed. Another example could be a hypothetical case where Lindex would get good money from the sale of Stockmann, which would then be distributed as dividends.
1 Like
That IH case is interesting. So did it happen that with the news, the share price rose by about the amount of the upcoming dividend? Now, if the share price stayed the same and the dividend payment dropped by the amount of the dividend, would the old owner get a free lunch? There was probably other news too, and I didn’t delve deeper.
I might even be on the right track, if Svenne is:
2 Likes
In that scenario, the value would be released simply by getting rid of the department stores; value would be unlocked even if the sale price was €0, and the markets might start pricing Lindex closer to peer multiples without a single cent of dividends being paid. 
In the case of the “tin hall” (Peltihalli), any additional dividend and potential share price increase would then come from the same group of people who have driven up the share price of Investors House; dividend payment itself does not create shareholder value in that scenario either.
1 Like
The point here was whether an additional dividend can be counted as income or not, and not whether value could be released otherwise.
On the other hand, I disagree with the notion that dividend payment would not create value. It’s a bit like claiming that a 200 k€ house received as inheritance would be the same thing as 200 k€ in cash. IMO, money paid into an account is more valuable than notional income that has not yet been realized.
2 Likes
In practice, dividend payment only creates value if all other investment targets have been deemed unprofitable. Dividend payment itself does not create value and rather destroys it if the starting point is that the taxman always takes a cut.
They are not the same thing, they are of equal value. If you sell the house and 200k in cash remains, no value is created in that situation either. In practice, however, in this situation, both the tax authorities and the real estate agent take a cut, and the value of the house may ultimately be only, for example, 190k, just as a thousand paid in dividends is not initially a thousand when it drops into the account. 
But is 700 paid into an account more valuable than 1000€ in the company’s account? Alternatively, the company could use the entire thousand to buy back its own shares, and you could decide when you want to join the dividend party by selling.
If the entire investment is in an insurance wrapper or, for example, a share savings account, dividend payment may be considerably easier to justify, but even then, the bank transfer does not create value, unless it’s Ilkka who would only destroy it with his investments.
5 Likes
Before arguing about this, it would probably be necessary to first define what value creation is and from whose perspective it is viewed. In my opinion, it’s a bit foolish to claim that a more or less locked-in cash flow to an investor’s account is not “valuable” to the investor. If you consider, for example, the rental income received by a real estate investor, it certainly has some “value” even though the money only transfers from the tenant’s account to the investor’s account, and taxes and other expenses must also be paid on it.
Sorry, I didn’t explain clearly enough. The point here was to understand that on paper they are of equal value, but ultimately the sum remaining in hand when “realizing” the “profit” can be different from what was originally on paper. In the same way as a thousand euros lying in the company’s account vs. a thousand euros paid into the owner’s account. That thousand can be realized, but only if the value of that thousand has transferred to the share price, which may not happen. Otherwise, you are only realizing your invested capital. It can also happen that investors assume the company will make several more thousands, in which case you might get even more. Similarly, a house inherited for 200 k€ might turn out to be unsellable or its value might increase. So, in the inheritance comparison and this one, the commonality is the same theoretical value that may not be realized.
I don’t know if exactly 700€ is more valuable, but on a general level, money lying in one’s own account is more valuable than money lying somewhere else. For example, a hundred-euro bill in your own pocket is more valuable to you than a hundred euros in a friend’s pocket because the money in your own pocket is available for whatever you want and whenever you want. This applies when the situation is taken out of context, and naturally there are situations where it is wiser to let someone else hold your money.
Buying back shares also benefits investors mainly when the purchases improve per-share figures. This can be difficult to ascertain if the share price is volatile and accounting practices make earnings-based ratios harder to understand. Tied to dividend distribution, however, it’s easy to grasp that with a smaller number of shares, the per-share dividend increases, etc. I don’t believe that for any company, merely buying back its own shares is a sensible way to approach profit distribution. In my opinion, however, it’s a bit foolish to compare or pit dividend distribution against share buybacks, as they are merely tools for profit distribution, utilized in different situations. It’s somewhat like arguing about which is better, a hammer or a saw.
I don’t know how relevant taxation is to the overall picture. Small investors can invest through share savings accounts (OST) or funds. Large investors, through funds or owners of large stakes, can receive dividends tax-free. Dividend taxation thus mainly concerns “not so small” small investors who have already filled their OST, etc.
4 Likes