Comments on Dividend Growth Investor: Why should companies pay out dividends?

D,Berkshire is the exception rather than the rule....

2008-11-24T08:34:00.000-08:00

D,

Berkshire is the exception rather than the rule.

I would like to get increasing capital gains and I am all for some reinvesting of earnings back for the business to grow and maintain liquidity. But more often than not businesses spend those money on acquisitions/projects that not only do not add value but also lose a lot of funds. I am all for a balance. The issue in corporate US is that the shareholders are the last ones to get paid. That's why they should demand dividends from mgmt ( oh yeah executives still get paid with shareholders money even if the company is losing billions). A company that doesn't pay dividends shows that they do not believe in the stability of their business model.

So, the reason that people bought Berkshire all th...

2008-11-23T17:21:00.000-08:00

So, the reason that people bought Berkshire all these years was the expectation that it would eventually pay a dividend? This, in spite of the fact that Buffett himself has said that he likely won't ever pay one?

I don't think that dividends (future or present) are a prerequisite for stock values. So long as companies use the capital sufficiently well, why wouldn't you continue to expect that, and continue to expect other investors to be willing to purchase that stock from you at some future time?

Anon,Your comment was right on the money. If compa...

2008-11-21T14:54:00.000-08:00

Anon,

Your comment was right on the money. If companies weren't paying out any dividends to shareholders, then no matter how profitable companies are.. Stocks might end up permanently undervalued..

Not to mention the fact that if companies didn't p...

2008-11-21T11:12:00.000-08:00

Not to mention the fact that if companies didn't pay out dividends then the stock market as we know it could not exist. All the value of a share of stock is is the present value of all (expected) cash flows associated with owning that stock. Any capital gain/loss on a stock is just investors adjusting their present value of future cash flows (increasing or decreasing their expectations).

Even for companies that don't pay dividends (like RIM or Google), it is EXPECTED that they will pay them one day in the future; that's what the value of their stocks represent.

If no company ever paid out dividends and the expectation was that none of them ever will then the value of your shares in that company would be zero; there would be no future benefit to you of owning the stock.