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danielosborne
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I am an investment professional currently working for the amazing Wall Street Bad Boys.
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  • Stock Of The Week: Is The Google (GOOG) “Special Dividend” Or Stock Split Good For Investors? 1 comment
    Apr 13, 2012 11:56 AM | about stocks: GOOG, YHOO, IBM, MSFT, ORCL, AAPL

    Irony of ironies: Google (NASDAQ:GOOG) wants to know everything about us but its executives do not want any of us who might be investors to have any say in how the company is run. Is that good or bad?

    To first put things in perspective: Google (GOOG) has just surprised investors by announcing that it will issue a one-time dividend in the form of a new class of nonvoting stock - "essentially a two-for-one stock split" in the letter to shareholders. However, Google's dual-class stock structure will remain in place and all stock holders will have the same voting interests as they did before the dividend announcement.

    What's the reason for the new class of nonvoting stock maneuver? Simply stated, the founders want to maintain control - which is harder to do when the company is also issuing common stock, options and warrants left and right as incentives to employees or for acquisitions.

    In fact, there are already more than 250 million shares of Google (GOOG) class A common stock outstanding plus another 70 million or so shares held by founders Larry Page and Sergey Brin along with former CEO Eric Schmidt who combined hold about 66% of the voting power. Moreover, there is also roughly 5 million shares for employee options and restricted stock meaning that all told, there are some 330 million diluted shares of Google (GOOG) outstanding.

    Hence and with the latest announcement, Page, Brin and Schmidt can continue to run Google (GOOG) however they please with little or no ability for shareholders to challenge them. And while that may sound bad, it also means that the three can take a long-term view beyond the next quarter and focus on creating long-term shareholder value - something that is also good for investors.

    Its worth noting that as of 11 am EST today, Google (GOOG) is down about 2% since the start of the year, up about 9.5% over the past year, up 35.5% over the past five years and up over 483% since 2004 - meaning at least over the long term, those who control the voting rights have delivered plenty of profits back to investors.

    On the other hand and should Google (GOOG) take a few Yahoo! (NASDAQ:YHOO) sized missteps(e.g. if the Motorola Mobility Holdings deal does not work out etc.), shareholders will have no way to get rid of those responsible. Moreover, Google (GOOG) is sitting on a $44.6 billion cash hoard ($21.2 billion is held by foreign subsidiaries), it does not pay any cash dividend and it does not appear poised to do so. In contrast, International Business Machines (NYSE:IBM) had $11.9 billion in cash and equivalents at the end of 2011 while Intel (NASDAQ:INTC) had $14.8 billion and Microsoft (NASDAQ:MSFT) had $51.7 billion plus Oracle (NYSE:ORCL) had about $30 billion as of its most recent quarter. Every one of these tech giants already pays a dividend plus Apple (NASDAQ:AAPL) has just announced a dividend and stock buyback program.

    Either way, it appears that the Google tripartite will remain more firmly in control of the company than even Vladimir Putin and the Chinese Politburo could ever dream of and thus far, that might not be so bad for investors after all. Nevertheless, Google (GOOG) will still have its ups and downs - meaning if you trade this stock, keep it in your NextCandle.com my portfolio list and keep an eye on our stock predictions for higher highs or lower lows.

    NOTE: THIS PIECE WAS JUST POSTED ON THE NEXTCANDLE.COM BLOG.

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  • eabyrd
    , contributor
    Comments (311) | Send Message
     
    Not really sure how I feel about it overall, yet. But on the bright side, this could be a nice tax break for investors, especially those with a short term horizon.
    13 Apr 2012, 12:36 PM Reply Like
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