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HungryHobo comments on Call for information, examples, case studies and analysis: votes and shareholder resolutions v.s. divestment for social and environmental outcomes - Less Wrong Discussion
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Comments (33)
You seem to be implicitly assuming that the only value of a stock is it's potential future increase in price, for most their dividends and stability are largely what set their value. Unless the divestment activists control a really really massive fraction of the market then that's not going to matter in any way shape or form.
Losing actual customers as with tobacco and fossil fuels absolutely can hurt a company. Losing sales hurts, it's only divestment that's irrelevant.
I don't think I'm assuming what you say I seem to be assuming. Could you explain why you think I am?
(I should probably have said "investors and customers" at the end of my second paragraph; I was echoing your reference to "investors" when you wrote about sin funds.)
When you own equity, you can profit in two different ways. One way is to receive some of the cash that the company generates, traditionally in the form of dividends. That's known as the dividend yield. The other is price appreciation.
These two ways are interlinked, of course, in many ways. Price change depends on the company's cash flows. A popular nowadays way of distributing cash to shareholders is share buybacks (they are more tax efficient) which work through share price.
To get back to the original point, many "sin" companies (e.g. tobacco) pay dividends. If the price at which you can buy the stock is "cheap" (= "consistently undervalued"), your dividend yield is higher even without any price appreciation.
Let's take a stylized example. Company XYZ's shares are traded at $100 and the company pays $5/year dividend. The dividend yield is 5%. Now let's say it has been targeted for divestment and the share price dropped to $50. At this point if you buy the shares you will get the dividend yield of 10% without any need to hope for a price increase.
D'oh, of course. My apologies for being dim.
Very clearly put.
Some companies (like up until recently Apple) didn't pay much in the way of dividends but instead pumped money back into company growth to try to increase the value of their shares. I think this may have been the kind of gain gjm was thinking of where you buy hoping the value will increase rather than banking on the company handing out good dividends.