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Originally posted by sgtclub
I'm not following you. You said above that debt is cheaper. This seems to suggest the opposite result (i.e, the argument I initially made).
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The dividend paid will always reflect a discount for the foregone interest deduction. If Uncle Sam is paying 35% of my interest, then, to simplify things, I won't pay more than 65% of a dollar's worth of interest in dividends instead, unless my shares are in trouble, because otherwise, I lose money.
An exception can be made where, like Microsoft, you have a very large shareholder with, effectively, a controlling interest in the corporation. Suddenly, he likes dividends, because he can get cash out of the corp more cheaply than he could by selling stock.
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You suggested above that it benefits companies, not investors. My point is that they are really one in the same, i.e., what is good for the company is essentially the same as what is good for its shareholders. You can't really disagree with this (well you could, but you would be wrong).
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My goodness, you are naive. In any large, publicly traded corporation, with a few exceptions (see Microsoft), there is no connection between the shareholders, none of whom own more than a fraction of a percent of the corp's stock, and its professional managers, who are paid bonuses and salary based upon the corporation's quarterly and annual performance.
They don't give a shit about the individual shareholders. In any event the only shareholders who matter are insurance companies and large pension and mutual funds. Those institutional shareholders care only about quarterly and annual performance of the stock, because that's what their fees are based on.
The people who wanted the dividend tax cut are people who own big chunks of stock that they got as options when they were CEO, trust fund babies, and a few self-made guys like Gates. These people have friendly boards that will declare dividends if the stock is in play (which puts their jobs in play) or the corporations have a lot of loose cash they can't decide what to invest in. If they pay it out to shareholders, the shareholders get cash at a lower effective tax rate than selling some of their stock.
Instead of freeing up corporate resources to invest in R&D and more jobs, the corps are paying dividends because they have cash they figure they won't make enough on if they invest it and holding it makes them attractive takeover candidates.
You could disagree with this, but you'd have to understand it a whole lot better first.
