MrB and Gottfried, re: the Economist article...and dividends
I just got around to reading it, and I did so before reading your comments on the article. It turns out that my initial reaction was also surprise at the way the article dealt with dividends - and especially the way it seemed to use low dividends to support an argument that the stockmarket is overheated.
My understanding (limited, I admit) of dividends is that dividend payouts are arbitrarily set by the company. The company can choose to pay out little or no dividends in order to plow money back into the company. These are "growth" companies, and many of the tech companies understandably choose to go this route.
On the other hand, many of the more long-established companies (utilites, for example) choose to pay out relatively large dividends because many of the company's stakeholders invest in the company primarily for the dividends that are paid, and the company may not need to use money that would otherwise go to dividends, for growth purposes.
So how much dividends to pay out is part of a company's long-term strategic planning. It's a complex and fascinating subject. The company wants to attract investors. The question is, how best to do that in relation to dividends? If, for example, a company that pays out large dividends were to switch stragegies and choose to put dividend money back into the company instead, then the company would potentially lose investors who rely on dividends.
To some investors, dividend payout is important, but to other investors, growth is more important. Which type of investor does the company want to attract? Much of it depends upon the nature of the company product, the growth stage of the company, and the corporate philosophy.
Ice
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