No. of Recommendations: 4
I would also simply note that while complaining of survivorship bias, *every* company eventually goes to zero. Some last a very long time (Westinghouse, GE), but nothing lasts forever. The whole capitalist theory is based on the idea that you, as owner, have a claim on the profits of the corporation. If you do not get dividends, you never, and I mean never get those profits. You may make money selling your claim to someone else, but that is a different thing. Dividends are the means by which corporations take the money they earn and distribute it to owners.

I realize most people don’t care about the distinction, but pick a company that has been profitable for a decade or two, never offered a dividend, and then suddenly go upside down and the issue becomes more tangible.


I'd modify that statement to say "dividends are one of the ways by which corporations take the money they earn and distribute it to owners." When company pays a dividend, the value of the company decreases by the amount of the dividend. So you got your money out, but your net worth is the same. Buffett's position is that the most effective way to take your money out of BRK is to sell shares (BRK of course does not pay dividends).

Another way owners can claim their share of the profits is by stock buy backs. The advantage of doing it that way is it is not a taxable event for the shareholders. A dividend is a taxable event of a size and schedule you do not control.

Back in the day, all companies paid dividends because there weren't liquid and transparent stock markets. In fact there were dividend paying companies before there even were stock markets. In the early part of the 20th century most of the return from the S&P was from dividends, not price. And even after stock markets become regulated and functional, transactions were costly and cumbersome, so dividends remained attractive. These days transaction costs are low and the process is easy, so getting your money out isn't the issue it once was. Accordingly, the dividend yield has slowly but surely decade after decade melted down to about 1.8% and most of the return comes from price, not dividends. I see no reason why that trend won't continue.

Again, I'm not trying to change anyone's investing philosophy, but be aware that these days most of your profits are being re-invested for you in the company, and at best only small portion gets returned to you in the form of dividends. So if the only way you are collecting your share of the profits is by getting dividends, you're leaving some of your money on the table.
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