Smithy is right that there is no conflict. I think we're largely in violent agreement here. Mathjak is arguing against a straw man with the whole "but it takes money out of the company" thing. Of course it does, that's the point.
I think in the bigger picture I could have been clearer about what my position is. I've expressed opinions on different things in this thread and I think that's been confusing.
One thing I said was that I generally like dividend stocks, because paying a dividend keeps companies humble and focused on the right things. That's entirely an opinion. And it's one that can be argued against by saying it generally makes more sense to keep the money in the company. That's fine. We can agree to disagree on that, no problem. Mine is just a not-strongly-held preference. Most of the arguments Mathjak has made here are against this position, which is not what the debate has been about.
Another thing I've said is that dividends are fundamental to stocks, and that poo-pooing them entirely is a wrongheaded approach. This is the point that I've been seriously arguing for. As my examples demonstrated, and Smithy's academic research agreed with, it is a stock's theoretical
ability to pay a dividend which gives it any value. Its value may go up or down based on many things, but at their core, all those other things boil down to how much value the shareholders could theoretically one day get out of the stock in the form of a dividend.
This does not mean that I'm saying that stocks that pay dividends are better stocks to own. Or that stocks that pay dividends are better-run companies. It does mean that all companies, fundamentally, whether they ever actually pay a dividend or plan to pay a dividend in the future, are valued based on how much a theoretical dividend might one day be able to be paid out.
I believe this is largely because before dividends are paid out, investors AS A WHOLE are net zero. Yes, they have shares which are worth some amount of money, which amount may go up over time. But investors AS A WHOLE cannot turn those shares into that money. They can exchange those shares with each other, swapping different amounts of money. But only a dividend can actually make the investors AS A WHOLE positive in dollars for holding the stock. (Or a stock buyback, I suppose, which is basically a dividend.)
Mathjak will say "I've made lots of money buying and selling stocks with no dividend involved!" Yes. But you're up by exactly the amount that somebody else is down, in terms of actual realized dollars. So investors AS A WHOLE are still net zero.
This does not mean that more companies should pay dividends. It does not mean that you can't "make your own dividend" by selling shares. Mathjak is right about all those things, and nobody has been saying he isn't.
mathjak107 wrote: ↑
Sun Feb 16, 2020 4:53 pm
Buffett says that if you can retain the money and generate more than a dollars worth of value than dividends should not be paid out ..
Should a company go in for dividend distribution? Buffett says, "The test on dividends is, 'can you create more than one dollar of value with the one you retain?'...If we do that, taxable or not, they are better off if we retain money. But when the time comes that we don't think we can use money effectively, we will pay it out.
I think that's exactly the right way to look at it. If a company chooses not to pay dividends, it does so in order that when the time comes
that it can pay out a bigger dividend. That time may "never" come. But all the value of the stock is based on what the size of the dividend may be in the future.
This is different from gold: gold is money, a store of value, a medium of exchange. Yes, it doesn't pay a dividend. We do hold it knowing that it's zero sum.
Stocks are different: the point of a business (and I think it's all too easy for us to forget that these are just businesses, often very big business with complicated financials) is to take in more money than it spends so that money can be distributed to stockholders. That is the one and only point of a business.
People might own the business for whatever reason, but fundamentally that reason, whatever it is, MUST boil down to at least the theoretical
potential for a dividend.