Dividends versus Capital Gains Part 2

Granted, many companies just can't afford to pay dividends. New companies that still must make a lot of investments to secure their businesses. Capital intensive companies that have to spend a lot just to keep up with the competition, and so on. Still, I would advocate that most investors stay away from such companies.

The companies that do traditionally pay dividends tend to be older and more established. They can afford to pay them.

One good example is Coca-Cola. It's paid only probably billions and billions of dollars in dividends to shareholders over the course of its long history. If it'd kept all that money, would it be even more successful? Would it have smashed all competition from Pepsi to Vess? Would Coke be sold in every single country in the world, even North Korea? Would every person in the world be buying a 6 pack or more a day? Or that the executives who introduced New Coke would have figured out they were making a mistake?

I don't think so. I could be wrong, but I think Coke has obtained as much brand saturation up to this point as it could have. It will keep expanding in the future, of course, and branching out into different kinds of drinks, but I don't think that there'd be a Coca-Cola bottling plant on every corner of the world if only Coca-Cola had refused to pay its shareholders dividends. I think many people in the world had to wait for various political and technical barriers that had nothing to do with Coke itself to fall. Plus, there're cultural and financial reasons why many people don't buy a drink they're not used to and can't afford. And of course Coke can't buy entry into North Korea or Iran.

I doubt its stock price would be so much higher that its investors would be glad it didn't pay any dividends.

It's Bernstein himself in an earlier section of this book that stresses the action of "return to the mean," or that trees don't grow to the sky, and businesses don't take over entire stock exchanges. At some point, the useful of that cash to the business would have to diminish. Some businesses have a natural limit to their growth, bounded on consumer tastes and other demand for their goods and services.




stock dividends

stock dividends