The Ignorant Investor

From the AP comes this little nugget:

NEW YORK - Although companies have amassed record stockpiles of cash, their dividend yields remain anemic. Some dividend-loving investors say it's time for that to change — and companies may be paying attention.

As companies have cut dividends, they've increased stock buybacks. But investors say the buybacks are no substitute for dividends.

This news increases my confidence in the investing community. After years of the S&P 500 trading in a range, are investors finally understanding that total return in equities is not based on massive capital gains alone? One hopes so. It would be a sign that rational expectations have returned to the market place. The kicker is here:

Corporate management had sold institutional investors on the idea that buybacks, or stock repurchases, by a company are as good as or better than dividends. "Managers have really successfully convinced institutional investors that $1 of buyback equals $1 of dividends," said Douglas C. Eby, president of Robert E. Torray & Co. Inc. and a manager of the $1.5 billion Torray Fund. . . . But that argument became unconvincing while corporations were issuing millions of shares of stock options to their executives, diluting the worth of outstanding shares.

I may be wrong, but the need to pay cash out of the corporate treasury seems like a decent rein on the modern greedy CEO. Whatever accounting tricks used on the balance sheet, having to pay out a couple of billion a year to shareholders keeps at least something out of the hands of the board and executives, who often seem too tempted to use it instead on worthless acquisitions or increasing their benefit packages.