As many in my office can attest to, I’ve been saying this for years:Bring Back the Dividends! Why debate whether some geek-conceived notion of ‘net income’ is properly reported. Just like in real estate, corporate valuation should be based on the future cash flow the OWNER can expect—not the future stream of ‘net income’ (whatever that is) the company will realize.

Growth companies, most notably MSFT and its $31 billion in cash (12% of market capitalization), choose to reinvest their profits to avoid double taxation. Clearly, no company needs this amount of cash on hand. MSFT will never find enough worth-while investments for this…but its share holders sure can. Fund managers close out funds because they find that they have too much capital with which to invest. They find that future investments will prove less profitable. Many companies lack this discipline and use their surplus cash, and tax-deductible debt, to invest in ventures with more risk for a given return. Hence Tyco and the fall of the conglomerate.

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