Comments on Dividend Growth Investor: 6 Dividend Stocks rewarding their shareholders wit...

@Dividend Growth Investor I believe we both said t...

2008-11-07T14:03:00.000-08:00

@Dividend Growth Investor I believe we both said the exact same thing, we just used different phrases and examples.

I think a companies earnings payout policy should be decided by their management, in the hopes you have invested in a business with honest and able management, you should be fine, dividends or no dividends.

However to clarify, I am not trying to say that all companies who don't pay dividends or low dividends are fine investments.

Without a doubt some day a business will hit an ROE wall, which better put is a ceiling in their companies life cycle, no doubt this will be succeeded by declining ROE, the time frame in which this unfolds could be super long or short. No telling, depends on business and market environment (i think I am getting to meta here and not practical enough). At this point paying out more earnings is the smart thing to do. But again if you have invested in a company with honest and able management, they will make the right decision.

Finally, you don't want to invest in companies whose top executives are hell bent on building an empire, as you said this can lead to "failed acquisitions, taking on too much risk with new products."

Please making conversation with you and as I said in the opening of this comment I think we are in agreement here.

Cheers.

Ethan

Ethan,In theory it makes sense for companies to re...

2008-11-06T08:04:00.000-08:00

Ethan,

In theory it makes sense for companies to reinvest their earnings straight back into the business.

In reality these money are wasted away on failed acquisitions, taking on too much risk with new products. Companies that consistently not only pay but increase their dividends over time are more fiscally responsible than the companies that don't pay any dividends.

Companies that reward shareholders with dividends are showing confidence in their ability to generate growing earnings because they could afford to. Furthermore companies paying out dividends show shareholders that earnings are real and not manufactured using an army of CPA's.

As a small business owner myself, I enjoy getting cash back from my businesses on a regular schedule so that I could decide if I wanted to reinvest into the business by purchasing more shares or spend it on something else.

Last but not least most companies can only grow their ROE/ROA to so much as they could be reaching the limits of their marketplace. The ROE would then incrementally start declining, making it worthwhile for these stocks to pay out dividends instead of spending the cash on acquisitions to buy competitors or start a division in a completely new sector in order to diversify. Most often than not diversifications do not work..

To summarize it is nice for companies to pay out some portion of earnings ( up to mid 50%) back and then reinvest the rest in the business. Success comes from good balancing.

@FixThePig If a company can put their earnings to ...

2008-11-06T00:13:00.000-08:00

@FixThePig If a company can put their earnings to good use, there is no reason for them to pay fat dividends.

I agree that it is nice to receive tangible (sort of) cash money from the businesses you own. However if they are plowing their earnings back into their business at attractive rates i.e. ROE (careful), then it should lead to an even greater enterprise value.

Stock is an ownership interest in a real business. Make sure your business is intelligently allocating it's capital, and weather it's dividends, share buybacks, capital investments or R&D it really doesn't matter.

Cheers.

Ethan

FO dividend increased. 5% yield

2008-11-04T19:32:00.000-08:00

FO dividend increased. 5% yield

FTP,Thanks for stopping by. I agree with you that ...

2008-11-04T06:42:00.000-08:00

FTP,

Thanks for stopping by. I agree with you that companies which have the earnings should pay their owners, the shareholders, back. Otherwise what good are record earnings if the owners never see a dime of it?

I love the idea of companies actually paying back ...

2008-11-03T21:32:00.000-08:00

I love the idea of companies actually paying back some earnings. It seems like so many company stocks you buy today never pay a dividend. Really when you think about it what are you buying if you don't get to share in the profits!