This is the first part of my 10 part series on the tenets of my investment philosophy. I believe that investing without a game plan is equivalent to a baseball player swinging with his eyes closed. Sometimes contact will be made, but not having a game plan makes the at bat that much harder. I’ve sent up a Tenets of Investing page where you can click to check out all 10 of my tenets. And just to screw with you guys, I’m going to write about them in a random order.
I’m really going to anger my pal Dividend Growth Investor with this statement, but I’m going to make it anyway. Dividends are not the be all and end all when investing.
Please don’t think I’m anti-dividend. Like my other pal Kevin O’Leary, I enjoy when companies “pay daddy”. Dividends are the nice payments you receive while waiting for the stock price to go up in value. When you’re a value investor like me, often that waiting period can be a long time. While dividends are nice, I believe investors should view them as a bonus rather than a necessity.
There are two components to return on investment. One of them is capital gains, the other is income. Some investments should focus on capital gains, while others should focus on income. And some investments should incorporate parts of both income and capital gains. That’s the sweet spot of dividend investors. That’s their game plan, not mine.
For someone like me, I’ll buy a company that’s trading below book value, yet isn’t making any money. In a situation like that, I’m more interested in buying assets worth a dollar for fifty cents. As long as I believe the business has potential for turnaround, I’ll buy it, earnings and dividends be damned. Not every investment needs a dividend to be considered attractive.
Saying all that, a company gets a bonus thumbs up from me if they pay a dividend. While getting paid to wait is a plus, it’s not imperative. If I was presented with two equal companies, with one being a dividend payer and the other doesn’t, I would pick the dividend payer every time. It’s just not very often that we’re given that choice as investors.
I’ve come to the conclusion that a lot of the stocks I’ll find attractive won’t pay dividends. I’m okay with that, I’m just hoping to find some companies I like that pay daddy.