Dividends for dummies

A dividend, as defined by the Business Dictionary, is “A share of the after-tax profit of a company, distributed to its shareholders…” This is reiterated in the description from the Oxford Dictionary: “A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).”

So in order to pay a dividend, you need to make a profit. Otherwise, all your revenue goes to operating expenses, salaries and taxes. And a dividend isn’t paid to just one person or shareholder: if one shareholder gets one, then every shareholder gets one. Dividends are NOT automatic, are NOT paycheques.

Now say you were a shareholder, and you stripped the revenue stream away from a company you own shares in, and in doing so, you reduced its profit to zero, and say you also caused it greater expenses – say by forcing it to pay more for legal advice or transportation and accommodations for out-of-town shareholders – would you still expect a dividend?

Common sense tells us no. No profit: no dividend.* But common sense is an uncommon attribute at our council table.

On March 13’s agenda, there was a letter from Collus-PowerStream saying the board had decided not to pay a dividend for 2015, and would decide about 2016 after it examined the company’s audited financial statements. (on the Rogers TV broadcast, it starts at 0:18:13, just after the lengthy, self-serving “community” announcements… go past Councillor “Sleepy” Ecclestone’s painful “moved by myself” grammatical error to 0:22:22).

This, of course, sent The Block into a tizzy. At 0:22:37 Sleepy again does another “moved by myself” gaffe to introduce a motion to request “an explanation of why the board has chose (sic) not to declare a dividend…” and to “express our concern and disappointment.”

Okay, dear readers, if you have followed this story you already know that:

• This council and administration killed the shared services agreement, thus severely reducing the revenue stream to Collus-PowerStream and killing any profits;
• This council and administration made unreasonable demands for Collus-PowerStream to release confidential, personal information that is protected under Ontario laws, forcing the corporation to seek considerable legal advice thus increasing its expenses;
• This council and administration made many, many demands for information and responses from Collus-PowerStream staff, taking them away from their day-to-day business and driving at least one to take a stress leave;
• This council and administration paid for consultants to produce one-sided, misleading and in some cases erroneous reports that were released to the public, and thus Collus-PowerStream had to get legal consultation on  challenges to counter the misinformation;
• This council and administration illegally fired the democratically-appointed utility members and replaced them with three out-of-towners whose travel and accommodation expenses to attend meetings (one comes from Ottawa!) have to be paid for by Collus-PowerStream thus increasing expenses;
• This council appointed our own town clerk (a Meaford resident) to the Collus-PowerStream board, and was therefore part of the board’s decision. Council could simply have turned to her to ask about the dividend at any time in the past year since she has been on the board.

If you followed the story last term, you will also know that Collus didn’t pay dividends. It funnelled any profits back into fixing and upgrading infrastructure, thus keeping operating costs low and reducing the need to raise hydro rates. That was the utility’s business model, approved by earlier councils. The partnership with PowerStream gave the utility several advantages such as operating efficiencies that helped improve the bottom line. Plus, the business model changed so that the two partners would share equally in any dividend rather than putting it back into the infrastructure.

At 0:23:02, Councillor Doherty says, “when the 50% share agreement was put in place, the community anticipated that one of the benefits would be a steady stream of income…” Duh. It’s a dividend, Deb, paid from profits. profits are what’s left over after you pay your expenses.

When you and your buddies killed the profits, you made sure there would be no dividend. Stop blaming others and start taking responsibility for your own actions!

But the 50% deal doesn’t promise ANY dividends. You cannot promise any financial recompense based on future activity. Geez, even banks don’t promise your investment funds will make money. A dividend happens when and if there is a profit. When and if The Block doesn’t kill it, that is.

“It’s not a partnership when the other side holds all the cards,” she adds. Right after acknowledging it is a 50% partnership. I don’t know where she learned math, but in my textbooks having half isn’t the same as “all.” Half means equal shares in every math lesson I ever took.

She then complains that the “other side” – i.e. PowerStream – sets the rules and controls the purse strings. Doesn’t she understand how the board works?

Decisions of the board are made by vote. There are three appointees from the town, three from PowerStream.  Equal representation. Majorities win. For the board to agree to anything, at least ONE of the town’s own appointees has to vote in favour of it. So no, Deb, the “other side” controls no more and no less than the town controls. Sheesh.

This only underscores with a thick marker the financial illiteracy of The Block; no one at the table has the slightest understanding of basic business terms or even how their own board operates. Their rigid ideology makes them charge ahead with such claptrap, unaware that they are making utter fools of themselves.

Councillor Kevin Lloyd chimes in at 0:24:08. “It’s pretty evident that if a corporation doesn’t make any money, it doesn’t pay a dividend.” At least he gets it.

At 0:25:50, Deputy Mayor Saunderson whines that the town hasn’t received the utility’s business plan. Well, Brian, if you paid attention, you would know that YOUR council and the town’s administration diddled and dawdled about the shared services for TWO YEARS, refusing to agree to anything, to define terms, to lay out costs, making it impossible for the utility to prepare a business plan without that information. All the while you stripped services away, taking water, IT and GIS from the agreement, and thus from the revenue stream. Further, the administration has been telling you and the public for TWO YEARS that the agreement was being worked on, was almost ready, would be finalized any moment. Yet when the interim CAO made a presentation to sell EPCOR to town staff earlier this year, he stated there was no longer a shared service agreement in place.

Did he fail to inform council? Or are they too dense to understand the consequences of their own actions?

How can a company develop a business plan when YOUR council and YOUR administration have been playing games like this? Stop whining about others, Brian, and take responsibility for your own actions.

And Councillor Tim Fryer- who was the CFO at Collus when the 50% deal was inked, and who should know what a dividend is – wasn’t even at the meeting. But you’d think he could have set his colleagues straight before the meeting.

Of course, all of The Block voted for the motion, plus the pledge and the mayor (why? I can’t fathom…). Only Councillor Lloyd voted no.

Like I said: common sense isn’t very common at the council table.

Collingwood deserves better.
~~~~~
* According to the Collingwood Connection:

According to Collus-Powerstream’s audited 2015 financial statements, the corporation had net revenue of $987,000, an increase of about $59,000 from the previous year. It also recorded a dividend payment to the two shareholders of $408,107, which was based on the previous year’s net income.

You can read the actual statements here. $987K is the total income, NOT the profit. You can also read the financial statements from Collus Solutions – the arm of the partnership that handled the shared services here. There you’ll see that revenue from those shared services dropped $230K in 2015. The annual report for 2015 is here.