Do you think I’m smarter than the board of Pandora?
Running a company must be a complex deal. A million things need to add up for a company to run smoothly. But why does it need to be so complicated to have a dividend policy?
Let me give you an example of a company, I feel are doing things wrong regarding Investor Relations and dividends: Pandora.
Pandora is a Danish jewelry brand with global exposure. In the last couple of years, the company have had a slowing growth and a decrease in sales. The stock has taken a big hit from a stock price of 1.000 DKK in 2016 to 220 DKK in June 2019 – A massive hit for a company that makes a decent profit every year an pays a dividend with a great yield and have a P/E ratio under 8.
Why did the stock drop like that (Snoop Dogg Style)?
I believe the Board and management tried to make the growth and increased sales to continue and even grow even more, even though the feedback from the markets didn’t give any indication of that.
Too late the company started to look at the stores and tried to determine which ones did make a profit and which ones lost money every month.
Here is, what I think, could have “saved” the company from the negative spiral they are now in:
Why does it have to be that hard? The company makes a ton of money and has a great cashflow. They can easily identify the stores that makes money and keep these.
They can easily continue to start initiatives to bring the production costs down, and they could easily have a steady dividend flow for their investors – Which I believe would have helped the stock price the last year or so.
For a company like Pandora I cannot understand why the board didn’t realize that they are no longer a growth company who need to expand, but instead they are a dividend company with all the benefits it brings.
When they make the amount of money that Pandora does, they could make a profit strategy along with a dividend policy being:
Pandora strives to pay out a increasing dividend every year to its investors. The initial payout should be around 40 % of the company’s profits. The rest should be used for three things equally:
Investing in the company 20 % (better factories, buying suppliers, new country entries)
Loan payments 20 %
Share buy-back program 20%.
This would in my opinion create a company that would attract a lot of investors.
People often say, that the company should use the money instead of paying out a dividend – in this way they still have this opportunity. The board can choose to use the money to pay the loans and the money from the buy-back program to spend on investments if agreed on the AGM.
People often say that the company should spend the money on marketing and invention to keep growing, but shouldn’t these expenses be a part of the day to day expenses and not taken from the profit. I mean – Pandora has a marketing department (I hope!) and a R&D department. These are not special expenses but just a part of being a corporation.
Maybe I’m wrong – can you see what is wrong with this idea, because I really can’t