John - The analysis seems to be that the roi for equity investments consists entirely of the npv of dividends paid in the future. Isn't it more realistic to also factor in the price one can get for the shares at the time he's ready to sell it?
Your analysis comes close to likening a share of stock to an annuity, which is gone when it pays out. A share of stock, in addition to its dividends, is a "store of value" which is reflective of its profitability and its value as a going concern.
I don't hold up the p/e ratio as being the be all to end all of stock valuation, but I do think there is a sound reason why that expression is more familiar to us than the p/d ratio.
To instead focus on a p/d ratio would totally discount the contribution of growth to the nation's wealth. Dividends are simply a way of cashing out. Plowing earnings back into a business is like a form of savings by the shareholders, wherein they elect (or, to put it more realistically, mgmt. elects for them) to reinvest their winnings as oppossed to consuming them.
An economy consisting of companies that do nothing but pay out dividends is an economy of no growth, where companies pay out the largesse of the present, but at the cost of never being anything more than they are now.
Perhaps the lower dividend payouts are a function of the rate of technological change, which requires companies to constantly reinvest to come up with better, more efficient, and hence more valuable ways of doing things. Now, perhaps this means that you get less jingle in your pocket to go along with your share of stock these days, but your share of stock should correspondingly be worth more.
I admit I'm not likely to see dividends from QCOM equal in npv to the price of the stock. |
