Of course, retained earnings is just one of the ways to appreciate a company's overall value. However, there are companies that can do it all -- i.e. retain earnings and plough it back into the business, AND buy back its own stock, AND also pay out ever-increasing dividends. Just open "Moody's Handbook of Dividend Achievers" and look for stocks whose "payout ratios" and the number of shares outstanding have kept decreasing, even as dividends are being increased. You will find dozens of them.
And I have already referred you to "Stocks for the Long Run", by Jeremy Siegel (page 107, 1998 edition). He looks at the "Nifty Fifty" and examines what happened to them during the period from Dec 1972 to June 1997 -- a period that encompasses all kinds of markets. Companies that paid increasing dividends (MO, G, KO, PFE, PEP, GE, PG) made it to the top of the list (ranked by annualized return) while the growth companies of the day that paid no dividends (TI, IBM, Xerox, DEC, Burroughs) made it to the bottom of the list. In fact, the latter set of companies failed to match even the S&P 500. |
