The result of years of research has led to the conclusion that the perfect SDG, indeed, does not exist. But some companies come close, and a group of such companies can provide a reliable, growing income stream.
I am a fan of Warren Buffet. Would Berkshire Hathaway be in this category of SDG? The company seems to have growing rates beyond any company I seen and they continuously rise steadily. I do not own any of their shares so I do not know if they payout dividends but I think they do not pay any. Instead Buffet pulls the money earned and invest on buying out well to do companies. With the share prices rising due to the successful buyouts I think this inherently is a dividend built into the investment.
Often times when people talk about dividend they think of money they take out but I think there are other ways to equate dividends. Thanks.
You are right. I own a really tiny portion of Berkshire shares (BRK.B of course, A is beyond my financial capability at this moment) and they do not pay dividends. You are also correct that they use this money to reinvest elsewhere, which in turn drives company growth.
Dividend payment and retention are two extremes - if you pay all of your earnings and keep none then you have no potential to growth (well, unless you finance elsewhere, which is another story then). It is always about striving a good balance.
But one thing to keep in mind is the cash flow! This cash flow due to dividend is so, so important for many dividend investors! Yes, some good companies are keeping money in their pockets for growth. But don’t forget many of them rely on dividend paying stocks to generate monthly incomes! Think of the retirees, for instance.
It’s just best of both worlds. :)
I agree! Cash flow is also a very important metric when it comes to measuring the potential viability of an SDG candidate.
You are correct, Berkshire Hathaway doesn't pay a dividend because Buffet believes that it is in the shareholders interest for profits to be reinvested. Therefore, Berkshire does not qualify as an SDG. Whenever we speak of "growth" we're referring to growth in dividend income. Thus, an 8-10% increase in income over long-periods of time is the key to long-term wealth creation and actually how Warren Buffet has built his empire. Thanks for sharing your thoughtful comment!
This article has provided a very decent and comprehensive summary. It is also worthwhile to mention Buffet prefers buying back of shares over dividend, and the article has explained why.
http://www.businessinsider.com/warren-buffett-on-dividends-2013-3
Thanks for sharing that, I'll check it out!