Sure, if you assume that management is going to blow the money away in stupid expansion projects, dividend is good. The problem is that 2% or 4% or even 8% dividend does not save you. If management is blowing 80% or 50% of earnings into stupid projects (and returning remaining 20-50% to you as dividend), you will lose as surely as if they were blowing 100% of the earnings. That's why Buffett evaluates management first, foremost and even second, third etc. Plus he makes assurances that even if idiots ran the business, the business won't die. (Which is actually not true, look at what is happening to Moody's, Geico was almost BK at one point, and I am sure that stupid management could screw up even Coke, but Buffett tells this tale for some assurance. ;)).
Yeah, I am totally with you: most managements do not follow Buffett paradigm (good growth or cash cow). They are only interested in growth at any costs. Plus they look for the way to please Wall Street, analysts, some generic shareholder groups, etc. HOG has spent more cash to buy back stock in last couple years than its current market cap. Would have been better to hoard that cash... But what do you propose to do? Buy only dividend stocks? Just remember that if company pays out a dividend then it is probably (possibly?) just a cash cow with almost no growth left. And most of the dividend paying companies are overpriced if assumed to be cash cows. Of course, CSCO, MSFT, or even JNJ, PG, KO will have some growth, so they are not totally flat cash cows. But some of them are close to zero growth.
I am not against companies paying dividends, although I would prefer that they did not pay them if they can reinvest the cash better. But I don't take dividends into account at all when I buy stock. |
