Buffett did not buy KO, AXP, WFC, WTM, BNI, KFT, WPO for dividends. The fact that they pay dividends is irrelevant to him.
So if they decide to cut the dividend so they can invest in a business with, say, a negative ROIC, that is unimportant to him?
He will be unhappy if they do this, but he is not going to sell because of such decision. In fact, I am pretty sure he would run KO, AXP, WFC, WTM, BNI, KFT, WPO differently than they are being run, but he has no control over overall management of these companies as he has no control over their dividend. (Even when he was on BODs, he did not choose to strongly enforce any of the principles he believes in, like management compensation). He chooses to invest for long term and the dividend policy is not one of criteria.
It is very possible, even common, that some portion of a company's earnings can be reinvested in the business at a good rate of return, but that there are excess earnings that are better allocated to dividends or buybacks.
Please give concrete examples.
It is very possible for company to hoard cash for future possibilities to reinvest in the business at a good rate of return. And it is preferable to dividends. And it is something that very few companies did before this catastrophe. HOG would not be in the current doghouse if they did not repurchase shares at high prices + paid a dividend. |
