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Minyan Mailbag - Qualcomm Dividend



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.


Happy new year to you and yours and may 2005 be all you hope and deserve and more..

Now about that pesky dividend, if Qualcomm (QCOM) had no "earnings" and the dividend is non taxable isn't the dividend then not expensible on the income statement? So if they are in a Q with no earnings a company can access the public market for low cost corporate debt, then turn around and give to shareholders tax free with the only effect being an increase in debt and a decrease in retained earnings on the balance sheet? And doesn't that result in dilution?

Minyan George

Happy New Year George.

A common stock dividend is never treated as an expense (deduction) on the income statement. The effect in the case you provide is accurate except I would not term it dilution. The shares outstanding would stay the same, there would be a reduction in retained earnings (unless there were never any earnings and consequently no retained earnings; then it would be treated as a return on capital), and earnings going forward would be negative due to increased interest expense on the debt. Although this has the same effect as dilution, I just would not term it so.

Peace to you.

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