like_to_retire wrote:MarketLost wrote:The reality is that many people, like me, won't buy a stock without a dividend, but that doesn't mean that is all I do.
Interesting. For me, my sloppy rule is that I won't buy a stock unless it pays at least a 1% dividend. Weird, and no justification for it, but that's the way it is.
I wonder what others use as a rule of thumb?
ltr
For me, dividends are irrelevant: I'm far more interested in the total after-tax cash profit that is (theoretically) available to equity holders. It's Buffett's concept of Owner Earnings, in which he defined as:
(a) reported earnings plus
(b) depreciation, depletion, amortization, and certain other non-cash charges
(c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in (c)
Of course, there is a degree of subjectivity to how one calculates this, so some might find it not very useful.
However, I do believe that this helps get to the heart of where dividends come from: from a portion (or sometimes all) of the pure after-tax cash profits a company generates. So if this is where the value of a company springs from, to me it makes no sense to focus strictly on one portion of where value is derived rather than where it fundamentally arises from.
Royal Bank (+4% dividend yield) or Lululemon (no dividend), it doesn't matter to me as long as the price I am paying for the cash stream - and the projected future growth of that cash stream - seems compelling relative to other opportunities available.
I'll take dividends, I'll take no dividends: it doesn't at all matter to me. I think when one gets solely focused on just the dividend, you *can* run the risk of missing the forest for the trees.