Interesting thesis, but where you love dividends, I don't. Particularly for overseas investors, dealing with withholding tax is painful, then there is the attrition caused by the tax and frictional costs involved in receiving and reinvesting dividends. Since the company has a market price that appears below its intrinsic value, repurchases would be far more accretive.
Excellent comment. I would prefer to have a dividend reinvestment option without tax…
Anyways, I believe there are much more nuances to capital allocation than that & not all owners think like you. I don’t love dividends, actually ~50% of my holdings don’t pay one at all.
While the ideal would be for them to reinvest 100% of capital at 30% ROIIC, that is unrealistic. scaling to fast is problematic for most companies, and incremental returns is not static. Further, buybacks is challenging for such small names, given their already limited trading volume.
What I meant by the potential dividend yield is that it would be unlikely for the company to offer this, hence, share price should go up (if these assumptions play out of course). If the thesis plays out nicely, one could also just sell the position before the ex-date in 2026 or whatever. Like I said in the write up, the dividend is actually reduced for now, so investors don’t have to “worry” about a large dividend this year
You state, "not all owners think like you" and that supports my position. There is no one-size-fits-all approach to dividends that suits everyone. That's another thing that makes them such a poor way to allocate capital. If you reinvest capital at good marginal rates of return, or repurchase stock, then shareholders have a choice. Those that need money can draw down a small part of their holding in lieu of dividend (and do it tax efficiently) while those that don't want a dividend can enjoy optimal compound growth. Even those that need money don't all need the same amount at the same time - so dividends are such a blunt instrument. Buffett worked that out years ago - I wish other CEOs would wake up.
Two of Nilörn’s largest shareholders are Traction and Fondsfinans. Traction requires cash flow to reinvest into its portfolio, so if they had to sell their stake to generate cash, it would reduce their control over the company. Fondsfinans, despite struggling with liquidity due to Nilörn’s small size, has held onto its position, as I mentioned in my write-up. Reducing shares outstanding through buybacks might not simplify things for institutional investors like Fondsfinans, especially considering the stock's limited liquidity. Further, buyback require more timing than dividends.
Additionally, Scandinavian investors like dividends, and many can benefit from tax-efficient accounts in their home-country. While some smaller Scandinavian companies do buybacks, others are restricted—like those listed on Nasdaq’s First North Growth Market, which I believe prohibits buybacks.
(1) There is a conflict of interest between the majority shareholders and minority shareholders: between Traction and the Fondsfinans on one side, and smaller shareholder on the other side and the company makes capital allocation decisions based on the wants and needs of the majority holders.
(2) The company allocates capital in a manner that works for Scandinavian investors due to tax rules (which, may I add, are far better than the tax rules in the UK and US with respect to dividends). But that the interests of non-Scandinavian investors are a secondary concern.
As a minority non-Scandinavian investor, does that not suggest this is not for me?
Have just started my work on this one. Appreciate the work
Thanks Javen, please send me a DM if you find something interesting ;)
Very interesting, thank you for sharing.
Interesting find, thanks for highlighting.
Interesting thesis, but where you love dividends, I don't. Particularly for overseas investors, dealing with withholding tax is painful, then there is the attrition caused by the tax and frictional costs involved in receiving and reinvesting dividends. Since the company has a market price that appears below its intrinsic value, repurchases would be far more accretive.
Most people misunderstand dividends. They actually destroy shareholder value and should only ever be used as a last resort means of allocating capital if all other options are exhausted. If you want to know more, see: https://rockandturner.substack.com/p/how-dividends-destroy-shareholder-value
Excellent comment. I would prefer to have a dividend reinvestment option without tax…
Anyways, I believe there are much more nuances to capital allocation than that & not all owners think like you. I don’t love dividends, actually ~50% of my holdings don’t pay one at all.
While the ideal would be for them to reinvest 100% of capital at 30% ROIIC, that is unrealistic. scaling to fast is problematic for most companies, and incremental returns is not static. Further, buybacks is challenging for such small names, given their already limited trading volume.
What I meant by the potential dividend yield is that it would be unlikely for the company to offer this, hence, share price should go up (if these assumptions play out of course). If the thesis plays out nicely, one could also just sell the position before the ex-date in 2026 or whatever. Like I said in the write up, the dividend is actually reduced for now, so investors don’t have to “worry” about a large dividend this year
You state, "not all owners think like you" and that supports my position. There is no one-size-fits-all approach to dividends that suits everyone. That's another thing that makes them such a poor way to allocate capital. If you reinvest capital at good marginal rates of return, or repurchase stock, then shareholders have a choice. Those that need money can draw down a small part of their holding in lieu of dividend (and do it tax efficiently) while those that don't want a dividend can enjoy optimal compound growth. Even those that need money don't all need the same amount at the same time - so dividends are such a blunt instrument. Buffett worked that out years ago - I wish other CEOs would wake up.
I disagree here.
Two of Nilörn’s largest shareholders are Traction and Fondsfinans. Traction requires cash flow to reinvest into its portfolio, so if they had to sell their stake to generate cash, it would reduce their control over the company. Fondsfinans, despite struggling with liquidity due to Nilörn’s small size, has held onto its position, as I mentioned in my write-up. Reducing shares outstanding through buybacks might not simplify things for institutional investors like Fondsfinans, especially considering the stock's limited liquidity. Further, buyback require more timing than dividends.
Additionally, Scandinavian investors like dividends, and many can benefit from tax-efficient accounts in their home-country. While some smaller Scandinavian companies do buybacks, others are restricted—like those listed on Nasdaq’s First North Growth Market, which I believe prohibits buybacks.
So what we are saying is that:
(1) There is a conflict of interest between the majority shareholders and minority shareholders: between Traction and the Fondsfinans on one side, and smaller shareholder on the other side and the company makes capital allocation decisions based on the wants and needs of the majority holders.
(2) The company allocates capital in a manner that works for Scandinavian investors due to tax rules (which, may I add, are far better than the tax rules in the UK and US with respect to dividends). But that the interests of non-Scandinavian investors are a secondary concern.
As a minority non-Scandinavian investor, does that not suggest this is not for me?
That makes sense. I would not recommend stocks to anyone, but given your preferences and dividend tax headwind, this may not be for you.
On their report today, they decided to keep a low payout ratio in 2025 as well, due to the size ($10M 2y) of reinvestments.
Have a nice day :)