Dividend Hikes and a Buyout Rumor
A quick portfolio update
I would prefer investing be very boring.
But Mr. Market has been reacting very dramatically lately.
Let’s update you on some of the recent developments in Our Portfolio!
Dividend Increases
It’s earnings season, and a lot of Our Companies have reported.
The thing that excites us most?
Dividend increases!
So far we’ve received raises of:
15%
10%
8.5%
and a $6.15 per share special dividend
Every single year, Our Companies pay us more and more in dividends:
But dividends raises aren’t the only thing going on.
Will PayPal Be Acquired?
PayPal’s stock is up more than 15% in the past few days.
Why?
Reports that there’s interest from other companies in buying PayPal.
Yesterday, it was reported that Stripe is interested.
To be honest, I’d prefer that the company continue to operate and buy back cheap shares.
When shares get as cheap as PayPal’s currently are, there’s a risk that another company will buy the whole thing at a very low price.
But in this case, we may have some protection.
Follow the incentives
Charlie Munger thought he was in the top 5% in the world when it came to understanding how important incentives were, and that he still underestimated them.
Let’s look at the incentives of Enrique Lores, the new CEO.
His new compensation plan is very interesting.
He gets a relatively low base salary ($1,450,000), and a lot of shares in the company if he can improve the financial performance.
Based on last year’s executive compensation packages, his performance based pay will likely be tied to:
Transaction Margin Dollars
Operating Income
PayPal’s stock performance relative to the S&P 500 (a metric called Relative Total Shareholder Return)
But that’s not the most interesting part.
Stock Price Performance Bonus
Mr. Lores’ biggest incentive is a one-time grant that could be worth up to $62.5 million.
If PayPal’s stock price increases significantly from the price when he starts, Mr. Lores can earn very large payouts:
If PayPal’s stock is trading at $50 per share when Enrique Lores starts, to get any payout, the price would have to increase to at least $80 per share.
What’s this have to do with PayPal getting acquired by another company?
First of all, the board was thinking long term when they designed this scheme.
The stock price this incentive is based on has to occur between the third and fifth anniversary of Mr. Lores’ start date, and he doesn’t get paid until his fifth year with the company.
If Lores incentives are tied to 3 to 5 year targets, PayPal isn’t brining him in to break up or sell the company.
Second, there’s a provision for a Change In Control - meaning if the company is bought.
Lores can still earn the bonus based on the per share price PayPal sells for.
That means that in the case that PayPal is sold, he’s incentivized to make sure that whoever buys PayPal pays a fair price.
One Dividend At A Time
-TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
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