Big companies that may soon pay dividends
It's no surprise that some of these firms don't pay dividends, but one once-hated company is poised to restart its payouts.
Right away, we can eliminate certain types of companies from contention, simply because they have had many decades to pursue a dividend policy and never have done so.
Warren Buffett's Berkshire Hathaway (BRK) is a perfect example. His company is such an active acquirer of businesses that retaining cash flow is a key ingredient of success.
AIG now focuses on a pair of insurance lines (life and property/casualty) that generate steady predictable cash flow. In 2012, free cash flow exceeded $3.5 billion, and analysts see that figure hitting $5 billion by next year. With 1.7 billion shares outstanding, a $2-a-share dividend would be quite feasible, and as interest rates rise (boosting AIG's returns on its gross cash holdings), this dividend could climb higher from there.
I don't bother with the big names that don't pay dividends. I want another way to make money on an investment, than just a stock price. We have seen what can happen in short order when the market panics, and at least a dividend cushions the blow. There are so many big names that do not pay a dividend, or barely pay a dividend. In my book, not a worthy investment. Sure, they "may" be a lot healthier, but they can get slammed just like any other stock. When that happens, and you don't sell, sometimes it can be a slow boat to China, to get your original investment back. Also, sometimes you may never get back to even.
Dividends are great, as they pay the shareholder to invest in their company. I personally think buybacks are a scam. IMHO buybacks help enrich the CEO's and top management with their company awarded stock options. It's a false sense of security to common stockholders, by making them think that less stock outstanding is better in the long run. Horse manure, as it can usually help the stock in the short term (and that's when management cashes in their awards), but in the long run, the stock languishes. Basically a well run company, that has good earnings overtime will attract investors with a rising share price as well. Many times companies buy back stock, only to reissue more shares at a later date in a way to raise capital. When that happens, the stock usually takes a dive, and sometimes can take a long time to rise after that.
As a common stockholder, I want that excess cash in my pocket in the form of dividends. I can either reinvest it into more shares, or take it for other uses. Dividends first, and if still more left over, then pay down debt (if the company carries a lot of debt). Debt payments eat into earnings overtime, especially when the economy is slow, like now.
Pay the investors first!
Copyright © 2014 Microsoft. All rights reserved.
After enjoying a smooth rise in stock prices since May, investors are about to be hit with another bout of volatility.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.