Adam Parker, Morgan Stanley’s Chief U.S. Equity Strategist, is on Bloomberg Surveillance with Tom Keene this morning.
While discussing dividend paying stocks, Parker noted that we should consider executive compensation structures.
Parker addressed this in a recent report to clients:
Management teams are paying themselves more in restricted stock units (RSUs) than in options. In recent years, more CEOs of S&P 500 companies have received compensation in the form of restricted stock than as options (Exhibit 14). It is important that fundamental analysts understand how the senior management teams of the companies they are analysing are variably compensated, as those with restricted stock and not options are much more likely to increase dividends. The principle? People rarely intentionally damage their own net worth.
The shift toward equity-based compensation was designed to align executives’ interests with shareholders. However, we have to wonder if corporate decision-makers will pass up better uses of cash to enrich themselves in the form of dividends.
Regardless, this decision to pay out an increasing dividend is crucial to investors. Since 1930, dividends have accounted for 42 per cent of stock market investment returns.
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