Today, Motley Fool posted an article stating that companies should pay stock dividends. Referring specifically to Steve Jobs’ stated position of not paying dividends on shares of Apple (NASDAQ symbol AAPL), Motley Fool columnist Matt Koppenheffer said, “But if you ask me, all of this is simply corporate sleight of hand by Apple attempting to convince shareholders that something that looks and smells like a cow pie is, in fact, something other than a cow pie.”
This strikes me as foolishness.
I’ll tell you how I look at it.
Your position on dividends hinge on whether you’re a short-term investor, or a long-term investor. If you’re in a stock for the short-term, then to hell with the future of the company, you want your money right now. You want dividends paid every quarter, and the more the merrier.
If you’re a long-term investor, making some extra scratch each term isn’t nearly as interesting as seeing the company continue to innovate, grow and succeed over the long haul.
Personally, I’m in it for the long haul. I want the company to have cash reserves to weather economic downturns, to make strategic corporate acquisitions, and to allow flexibility to explore new markets.
And while we’re at it, let’s look at the historical record. Apple stock has shown tremendous growth over the past several years without paying any dividends. Exactly what is the motivation for changing that formula now?
Bottom line, I think Motley Fool blew it on this one.
Full disclosure: I’m a former employee of Apple, and a current stock holder. I don’t think those facts affect this article, but maybe you do.
The only real advantage of dividends (and this is likely an ancient attitude) is when people live on (at least part of) their dividends…this was huge in the old-style company towns; but with bonds in the tank (interest-wise), there aren’t a lot of places to hide.
With modern diversification and investor savvy….this is likely dead…but it likely still exists in coal towns…