With apologies to Walt Disney:It’s a small world…. but a huge deal

In John Fredriksen’s world, a company’s value is directly related to the dividend it pays. Sufficient cash is retained to grow the business with maximum leverage added. The excess cash is then paid out to the shareholders as divi­dends. It doesn’t hurt, of course, that Mr. Fredriksen is a major shareholder in each of his portfolio of companies and therefore the largest recipient of this largess. It is the classic John Fredriksen formula and it works due to his successes and persona. In fact, it is his response to the long-standing argument in financial theory as to whether a company should hoard its cash as opposed to returning it to its share­holders. This theory postulates that a company should “retain and re-invest earnings as long as returns on the investments exceed the returns stockholders could obtain on other investments of comparable risk.”

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