David Van Knapp

3 Stocks that Could Pay Out Larger Dividends

A company must decide what to do with its excess profits. There are hundreds of choices: hoard them; pay a dividend; buy back shares; invest in internal projects; make acquisitions; etc. Companies at different stages of their lives will make different choices. There's an optimum mix for every company, but not all companies find it (MSFT may be a good example).

For a mature, consistently profitable company in a sustainable business, I like to see dividends, not only paid each year but raised each year. Presumably such a company has sufficient cash flow to both pay a dividend and re-invest in itself for its own growth. Dividends are superior to buybacks, because buybacks are only indirectly related to share price, often inconsistently administered, and often occur at high prices--the company makes the buyback when business has been good and it has excess cash; unfortunately, the same factors have probably driven up the share price.

A concisitent dividend policy "forces" management to be more careful with the dollars that are retained. Fewer "vanity" projects get funded; acquisitions (which are often detrimental to a company) are examined more closely; internal investments are made more carefully. The dividend policy helps steer the company in the direction of being a well-run company.

Doesn't always work: Look at the banks in 2007-2008. They paid dividends while being exceptionally poorly run. Then they blew up. But as a general rule, dividends are a good thing.

The Future of U.S. Consumer Spending: It's a Generational Thing

My observations are quite different. Lots of young people at McDonalds and Wal-Mart. Some companies manage to stay ahead of the curve for generations (like J&J, PG, and the like). If you were to ask me to name a restaurant and retailer that are likely to be able to do that, I would have named McDonald's and Wal-Mart.

Dow Target 6,617, October 25, 2009: Here Is Why

Well-reasoned comparison. I agree that history rhymes. That's why the failure to consider the elephant in the room--government intervention--makes the chart comparisons of historical interest only. The actions of the government in 1930 could hardly be more different from the actions of 2009. The fact is, we don't know what the outcome of all of the government programs will be 1, 3, and 5 years down the road. We've never been down this road before.