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Dividends? Who needs those?

 

The basic premise of the equity culture is "Dividends? Who needs those? Just buy stocks. Stocks have returned 12% per year. So buy stocks." This was the same mentality that existed in the run up to the great cash of '29.

True, in nominal terms, the S&P 500 Total Return (dividends + interest) has been about 12% a year. And according to S&P, 44% of that growth was due to dividends.

When an investor purchasing non dividend paying stocks, she is speculating that the price will go up. If she waits long enough, she will be right about her speculation.  As a big fan of dividend investing, I feel that dividend stocks are investments and they also have a speculative component. All equity investments have a speculative component. Dividend payers have a lower speculative component. Non-dividend payers have an small investment component and a large speculative component. The theory behind non-dividend payers is that if you wait long enough the company will mature and start paying dividends. This happened with Microsoft.

I assume that this could happen with Apple and Google, but then, that would speculation. As a strict income investor,
I would never buy an Apple or Google these are great companies that have returned fantastic capital gains.  Any income investor who bought Apple when it went public in 1980, is still waiting for her first dividend check. However, she doesn't need it, she has made a killing on the capital gains.

I would love to buy Berkshire Hathaway. If they paid a divy, I would buy them.

AAPL, GOOG and BRK.A BRK.B are not for a dividend income investor. Holding T or MO or VZ is enough speculation for me.