Declaring a dividend means Mgmt has run out of ideas

Excellent article in Axios on dividends and why savvy investors tend to avoid them.

https://www.axios.com/newsletters/axios-markets-700f8d62-48d5-4766-9ea0-a9032e0ae081.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosmarkets&stream=business

intercst

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Baloney on your headline. Sometimes there are no other ideas, at least in your lane. If you want management to go wild game hunting in a field they know nothing about, well good on you but I’d prefer they do what they are supposed to: return profits to shareholders.

You can build skyscrapers, but at some point it’s as tall as it’s gonna be without falling over. Know how tall to build - but not more - is also part of the art.

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I think the advice is to sell before they declare the dividend. I agree that you don’t want management deploying the money outside of their area of expertise.

intercst

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3 of the 7 Magnificent 7 pay a dividend. NVDA, up something like 400% in the last two years pays a dividend.

How foolish would it have been to have avoided NVDA under the assumption that their dividend meant no more growth?

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I’m not sure of the rationale for NVDA to pay a dividend. It’s only $.16 per year (.02%).
It seems kind of pointless. Perhaps it was declared early on and simply doesn’t get reviewed by the board as it is non-material?

I guess if I was eliminating dividend stocks from a screen (I’m not), I think I would filter on dividends > 1% as a meaningful figure.

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Apple pays a dividend! Frankly, I won’t buy a stock that doesn’t pay a dividend! That view has done me very well over the past 30 years.

JimA

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Not sure I agree. Seems to me one invests in growth stocks because those companies are in growing industries and need to keep that cash to continue growing the business. The investor is rewarded when selling shares at a higher price.

Dividend stocks are companies whose business/industry is more mature and not growing like gang busters. However, they are generating profits and want to reward shareholders without requiring them to sell shares to reap those rewards.

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[quote=“Neuromancer, post:5, topic:101552”]
It’s only $.16 per year (.02%).

I think I would filter on dividends > 1% as a meaningful figure.

They actually cut their dividend a few years ago. When they last increased their dividend in 2019 to $0.64, the price of the stock was about $36 which was a yield of 1.7%.

They cut it by 75% in 2021 - a logical decision considering. They will probably increase it again soon if one considers their past practice of increasing their dividend on a regular basis.

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Apple (re) instituted a dividend in 2013, when sales were around $180B. Last year sales were almost $400B, and the stock is up, oh, I don’t know, 1000%? Maybe less, dunno, too lazy to look it up.

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Whether you get a quarterly dividend, or sell a few shares in the same dollar amount, the tax treatment is the same. Not paying a dividend gives the investor the flexibility to take his income on the schedule that’s most tax efficient for him. BRK is sharing a boatload of profits and rewards with its shareholders. They just see it in a rising share place, and can collect it by selling a few shares.

intercst

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Correct. But that is because they have demonstrated a long-term skill at finding profitable things to do with the cash generated by their various and sundry businesses.

Some goes from one existing business to another existing businesses, because they have a good use for that cash. Some goes into buying new businesses outright. What’s left goes into stocks and bonds. Because they’re effectively an investment conglomerate, they have an endless supply of places to use their cash.

That’s much different from say, a machine shop, whose management is very good at running a machine shop but knows nothing about running a restaurant chain or any other business. They could invest in new machinery, or expand their current business, but running some other kind of business is a bad idea.

So BRK keeps their free cash, while the machine shop invests what they can and sends the rest to their shareholders.

–Peter

Dis just upped their dividend. Their outlook and new things coming on line are substantially improving.

In the case of BRK, I hope one has their shares at a brokerage where you can sell fractional shares - or that one never need to sell a “few” to make ends meet. :slight_smile:

And contradicted by this article, at least as a stock investment. When taken as a conglomerate, dividend payers outperform non-dividend paying stocks. At least over the last 47 years per this article.

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Most regular retail trade folks don’t buy the Berkshire A shares anymore at about $600,000 a share. We buy the Berkshire B shares at about $400 a share.

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