Verizon as a case study of what’s wrong with our economy, part 5
It’s a math problem, instantly recognizable by anybody who’s tried to balance a family budget lately.
But it’s also a morality problem.
Here’s the thing:
- Verizon reports annual income of $54,287 per employee. BUT
- This past February, Verizon indulged in a stock buyback equal to about $28,000 per employee. AND
- Verizon continues to pay out, in annual dividends to stockholders, more than $50,000 per employee.
Between buybacks and dividends, there’s a lot more money being “distributed to stockholders” than the company reports as income. That’s the math problem.
Which is depressingly reminiscent of the business practices of the private equity industry, documented back in 2012. “Bain, and some other private equity companies …had companies paying dividends using borrowed money, not profits.” (Read “What Mitt Romney Taught Us about America’s Economy” here.)
And Verizon has accumulated a substantial amount of debt, along the way. Right now, the corporation has long-term debt equal to about $655,000 per employee. And its Morningstar credit rating is only BBB (“moderate default risk”).
But the dividends it pays out to shareholders keep ratcheting higher… always higher. (And yes, Verizon CEO Lowell McAdam is a substantial shareholder, getting dividends worth more than a half-million dollars a year.)
Instead of cutting dividends to grow the business, Verizon has borrowed money – putting itself in debt at least through 2055.
Just this month, the corporation announced another increase in the dividend rate. While the corporation’s employees were working without a contract. Because Verizon wants givebacks from its employee unions.
Again: Verizon is increasing the amount of money paid to shareholders at the very same time it is insisting on employee givebacks.
Yes, there’s a morality problem here.
Anybody else see the Brookings study, earlier this week, “Would a significant increase in the top income tax rate substantially alter income inequality?”
As I see it, the researchers totally missed the point.
When you’re talking about the macroeconomic effects of tax rates, the big effect has nothing to do with the amount of revenue produced.
Instead, policymakers (and researchers) need to focus on how various tax rates influence decisions made on the micro level.
Anyone who lived through the Eisenhower era of 90% tax rates knows that CEOs make very different decisions when 90% of their income is going to the federal government. (For instance, they’re not anywhere near as likely to borrow money to pay themselves a stock dividend, if 90% of that dividend is going to the federal government.)
If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.
Stand Up to Verizon is on Facebook here.
Part one of this “Verizon as a case study” series is here. It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which followed.
Part two of the series, showing how Verizon executives benefited from the $5 billion buyback, is here.
Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.
Part four, about phantom stock and how Verizon executives are avoiding taxes by investing in imaginary assets, is here.
This is part five.
Part six calculates that — because of all the dividends and long-term borrowing — each share of Verizon stock now represents less than $3 in stockholder equity (even while it’s trading at more than $40 a share); read it here.
And yes, there will be more in the series. Please check back.