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On the other hand, companies with long histories of sustained and rising dividend payments also tend to outperform the S&P500 in terms of total return (dividend

On the other hand, companies with long histories of sustained and rising dividend payments also tend to outperform the S&P500 in terms of total return (dividends + capital gains), and do so with lower volatility. Reasons include having a business that is profitable and stable enough to sustain such payouts and a management culture that appropriately balances shareholder interest (by paying dividend) against the long-term viability of the business (and can therefore continue its dividend payments over multiple decades).

gruez 6y ago
>On the other hand, companies with long histories of sustained and rising dividend payments also tend to outperform the S&P500 in terms of total return (dividends + capital gains), and do so with lower volatility. Source?
lmnice 6y ago
Just a nitpick: > a management culture that appropriately balances shareholder interest (by paying dividend) In theory a company should invest in whatever has the most favorable risk-return profile. If it pays dividends, that means dividends are judged by management to be the best risk-return profile among all other alternatives. A company can pay zero dividends and still protect shareholders interests.
- Retric 6y ago
  That’s not quite accurate. A company is ultimately controlled by it’s owners who may prefer dividends. One possible example is maintaining the current ownership structure while providing an income. Think someone owning 51% and wishing to maintain control.
  - lmnice 6y ago
    > A company is ultimately controlled by it’s owners who may prefer dividends. If the reason they "prefer" dividends is not because they evaluated the alternatives and decided that the risk-return profile was favorable (for the company, not for themselves in particular)), then they are acting against the interests of the minority shareholders. That may carry legal consequences or not, depending on your jurisdiction. In my country (Brazil), there are laws protecting the interests of minority shareholders. If you have 51% of a company that is listed on the stock exchange, you have significant but not unlimited power. Also, maybe the company sees it as a risk that, in reducing the dividend, it may suffer in the short term due to the outflux of shareholders who see it as a dividend play. In that case, the risk-return profile of paying zero dividends is not favorable.
    - Retric 6y ago
      In practice protection for majority shareholders does not extend to a preference of dividends over investments in any jurisdiction. All investments carry risks, dividends don’t so the only legal justification required is to select a low risk threshold. Such protections are designed to avoid selling off assets at below market rates to majority shareholders and other such clearly suboptimal choices.
WA 6y ago
Counter example: Apple. Low dividend, but all other check boxes apply.
- betterunix2 6y ago
  Sure, but let me make two points: 1. I did not say anything about how high the dividend is, only that it has been sustained and has not decreased for a long period of time (multiple decades). Some companies on the list currently pay relatively low dividends as well. 2. It is a heuristic, so it will definitely miss a few great companies and some companies on the list will go on to do poorly (not that any method of stock picking will be any different).

gruez 6y ago

>On the other hand, companies with long histories of sustained and rising dividend payments also tend to outperform the S&P500 in terms of total return (dividends + capital gains), and do so with lower volatility. Source?

lmnice 6y ago

Just a nitpick: > a management culture that appropriately balances shareholder interest (by paying dividend) In theory a company should invest in whatever has the most favorable risk-return profile. If it pays dividends, that means dividends are judged by management to be the best risk-return profile among all other alternatives. A company can pay zero dividends and still protect shareholders interests.

Retric 6y ago
That’s not quite accurate. A company is ultimately controlled by it’s owners who may prefer dividends. One possible example is maintaining the current ownership structure while providing an income. Think someone owning 51% and wishing to maintain control.
- lmnice 6y ago
  > A company is ultimately controlled by it’s owners who may prefer dividends. If the reason they "prefer" dividends is not because they evaluated the alternatives and decided that the risk-return profile was favorable (for the company, not for themselves in particular)), then they are acting against the interests of the minority shareholders. That may carry legal consequences or not, depending on your jurisdiction. In my country (Brazil), there are laws protecting the interests of minority shareholders. If you have 51% of a company that is listed on the stock exchange, you have significant but not unlimited power. Also, maybe the company sees it as a risk that, in reducing the dividend, it may suffer in the short term due to the outflux of shareholders who see it as a dividend play. In that case, the risk-return profile of paying zero dividends is not favorable.
  - Retric 6y ago
    In practice protection for majority shareholders does not extend to a preference of dividends over investments in any jurisdiction. All investments carry risks, dividends don’t so the only legal justification required is to select a low risk threshold. Such protections are designed to avoid selling off assets at below market rates to majority shareholders and other such clearly suboptimal choices.

WA 6y ago

Counter example: Apple. Low dividend, but all other check boxes apply.

betterunix2 6y ago
Sure, but let me make two points: 1. I did not say anything about how high the dividend is, only that it has been sustained and has not decreased for a long period of time (multiple decades). Some companies on the list currently pay relatively low dividends as well. 2. It is a heuristic, so it will definitely miss a few great companies and some companies on the list will go on to do poorly (not that any method of stock picking will be any different).