The Distribution of Corporate Dividends

Abstract

Of primary importance to the investor in corporate shares is the dividend return. But many a purchaser of shares has other dominant interests. He may desire merely to qualify to be a director. He may be a pirate and contemplate a particular suit which he can institute only as a shareholder. He may hope to acquire the right of a shareholder to examine the stock ledger or other books or records of the corporation in order to broaden his activities as a broker or promoter. He may seek to gain control of the corporation in order to loot it, or to preclude it from competing with some other enterprise in which he is primarily interested. He may be a speculator buying shares to cover a previous short sale, or in anticipation of a rising market and a profitable resale. No one of these persons has the interest of an investor. The investor buys shares for the long pull, and while he will be gratified by an appreciation in market value, his major concern is with income, i. e. dividends. One investing in corporate shares, whether an individual or an institution, desires the corporation to make the maximum possible profits and to distribute such profits in the form of dividends as rapidly as may be consistent with the continuation of maximum profits in the future. But this may not be the goal of the corporation's management. In many modern corporations the ownership of the shares is so widely scattered that the management, i. e. executive officers and directors, through control of the proxy process for shareholders' meetings, is self-perpetuating.' Where such management control exists, the members of the management may own very few shares, as personal shareholdership is not the basis of their control. And where the officers and directors themselves own very few shares, their interest in the corporation may relate primarily to matters other than the distribution of profits. They may develop philanthropic interests such as raising living standards by increasing wages as rapidly as competitive conditions allow, or by progressively producing more and cheaper units to the benefit of the consuming public. Or they may be interested not in dis-