Dividends don't matter to everyone

By Dian Vujovich

I happen to be a big fan of stocks that pay dividends. Perhaps that’s because I’m not as young as I used to be and clearly remember the widows-and-orphans investing notion promoted during the last century. Income from equity investments was thought of as both a conservative investment strategy as well as income-producing.

Of course, that was prior to all things Internet and growth related.

As we all know, dividends aren’t a given. Companies do not have to pay them and can change the amount paid per share at any time. GE, for instance, recently raised their dividend payout. But a company can just as easily cut its dividend or quit paying them. We saw the latter within the banking industry over the past few years but now, banks— like Wells Fargo and others– are expected to restore their divies to higher levels in the not-so-distant future. We’ll see.

Talk to some growth pros and they’ll remind you that growth is an income-producer too. Buy a stock that has a per share price that increases substantially, sell it to take profits and that can translate into income, too. Just not the kind that comes to you quarterly.

But how much dividends have to do with the value of a company isn’t an if-than kind of thing. And, was the subject of a recent column written for SeekingAlpha.com by Steve Hassett, president of Hassett Advisors in Atlanta.

In the piece, Hassett refers to Nobel Laureate Paul Krugman, who said:” Now earnings are not the same as dividends, by a long shot; and what a stock is worth is the present discounted value of the dividends on that stock – period, end of story.”

As you might guess, not everyone agrees.

From the story: “Franco Modigliani and Merton Miller posited in their famous article on the “irrelevance” of dividend policy, that it is the underlying expected earnings and cash flow of companies, not their dividend payouts that determines market values. Dividend policy does not impact valuation.”

It’s what makes a horse race, these differing points of view. But as a fan of KISS, a sound, well-establish company with a long-term history of paying a dividend through good market conditions as well as bad, makes income-producing simple sense to me.

Hassett’s full story at: http://tinyurl.com/4gkmc6g