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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Axel Gunderson who wrote (4690)	8/17/1998 11:36:00 PM
From: James Clarke	Read Replies (3) \| Respond to of 78626

No problem - we all got a chance to think through an important issue. What did we learn? 1) Dividends are double taxed; but 2) That does not by any means mean you don't want dividends. I like Warren Buffett's take on dividends. If a company can reinvest its earnings at 15 or 20%, it should not pay any dividend. Most companies feel a need to pay a dividend - but I would agree with Buffett. If the business I have invested in can reinvest better that I can, I don't want the dividend. But on the other hand, most of my investments now pay 7-10% dividends. These businesses can't reinvest any better than I can (though I have to reinvest after paying taxes on the dividend). But the reason I have invested in these companies is the safety the dividend gives me. With the long bond at 5 1/2%, if I can find a secure 8% dividend (plus the potential for a double, like USEC), I'm all over it. That's two ways to win. That said though, in ordinary circumstances, dividends are irrelevant. What you want to look for is free cash flow, and if the company doesn't pay a dividend is that a rational decision. This market is not "ordinary circumstances", so I am looking for high dividends. Jim