Message Font: Serif | Sans-Serif
No. of Recommendations: 7
My lifetime's understanding is Intrinsic value is what counts,
of high dividend stks are the craze, return potential goes down,, by defitition.

Theoretically, a company that reinvests all their cash should grow faster than a company that pays a dividend. In practice, however, this is not what actually happens.

The problem is that when all the cash is being reinvested, it is very easy to spend some of it on things that don't really contribute much to the growth of the company (like management meetings in Hawaii - or super fat management bonuses). The decisions about where to invest the money rest totally with company management, and the stockholder has to assume that management is doing the right things - not a good assumption in many cases. Also, with a large company, it is very difficult to always find things to spend all the earnings on that will promote additional growth.

OTOH, when a dividend is paid to the stockholders, and that dividend has a long history of steady growth, that is tangible evidence that the company is succeeding for the long haul. In fact, data shows that companies that pay dividends have higher long term historical total returns than companies that do not pay dividends. Dividends tend to promote fiscal discipline and keep management on track.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.