Wednesday, August 20, 2008

No Dividend, No Way

Sometimes being a dividend investor sucks. As part of my overall investing strategy, I state that 'dividends are half the journey'. This essentially rules out any potential investments that pay a very small, and/or non-growing dividend. There are a few stocks, with stories that I believe in long term that were eliminated from my watchlist because of this fact.

Google (GOOG) - This company is pure internet genius. Their products continue to amaze and delight me. Google should continue to find ways to profit from their innovation and dominance online well into the future. No dividend.

FedEx (FDX) - Globalization, barriers to entry, great brand. Too bad UPS pays a nice rising dividend. Low dividend.

Starbucks (SBUX) - Fabulous brand! Room for growth worldwide as developing country consumers indulge in coffee decadence. Also potential for growth of non-food products. No dividend.

In my opinion these three firms are all good long term investments, but without the power of dividend growth behind them, they're just not worth my investment dollars.

This article was written by the moneygardener. You may email questions or comments to me at [themoneygardener(at)gmail.com].

4 comments:

  1. This is one question that I've asked myself over the past few months as I near completion of accumulating shares for my RSP & DivG portfolio. Do I add or speculate on which stocks I anticipate will provide dividends and considerable dividend growth in the future?

    I've always wondered about stocks such as RIM who once they achieve a more mature market might start dishing off extra cashflow in the form of dividends in the near future.

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  2. I've wondered the same thing about company's like Tim Hortons, Starbucks, Costco, FedEx, Walgreen, Shoppers, etc. Would be nice to get on the train from the start.

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  3. I think the majority, like 90%, of ones large cap portfolio should be in dividend growth stocks. However, dividend growth investing is a discipline that leads to company's that have consistently growing cash flow, among other factors. So, I think it is acceptable to look at high quality company's that have exhibited strong cash flow growth over a relevant time period similar to what you would use to evaluate dividend growth.

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  4. Buying only dividend payers does eliminate some excellent companies and i have a hard time excluding these companies just because they don't pay a dividend.

    I agree cash flow and earnings are important, but if the company is doing useful things with retained earnings then why not let them work their magic?

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