I remember the first time I got a dividend payment. It was from Compagnie Financière Richemont. One day in the mail (actual real life mail) I got a thick wad of super-complicated foreign exchange forms (the dividend was in Swiss Francs) and a thick glossy catalog which also doubled as the company financials. Shiny! Before then I’d only ever traded commodities (which gives you nothing, except sadness and acid reflux). I’d perused the forms, briefly. And then decided it was waaaaay too much work for the paltry amount they were giving me, unpaused my game and went back to killing stuff on Playstation.
The second time I got a dividend it was infinitely more exciting than the first. Post event I decided that maybe I liked this dividend thing after all. Money sorta just appeared in my account and I didn’t have to do anything. Who doesn’t like free money?
Wait… what exactly is a dividend?
A dividend happens when a company makes sooooooooo much f’ing money that they don’t actually know what to do with it. Like when they sell a pair of shoes that cost them 20 rupees and a small government
kickback imposition to make but what they’re actually selling is a fictional narrative for $165. At some point during the year the head honchos all get together and, after strippers, blow and some self-congratulatory back slapping, they ink out a corporate strategy on the back of a napkin and then decide to distribute that money to shareholders.
I jest. Sometimes they do this in a smoky walnut paneled room at a country club.
I suppose it depends on what sort of investor you are. Or maybe how you feel about how you make your money. If you even care. I tend to flip-flop between liking dividends and then (usually by the end of the day) not liking them anymore.
Declaring a dividend, for me at least, is often either a sign of a late stage business with nowhere left to go, or of a poor management team. I use the term poor quite loosely. I mostly mean people so devoid of imagination or work ethic that instead of reinvesting that money in the company they would rather just give it away. It underscores a huge problem in the higher echelons of the corporation. Generally speaking when you’re at the pinnacle point in a management environment you are also nearing your expiry date. You need to make hay while the sun shines and don’t necessarily want to rock the boat with adventurism and entrepreneurship. Also you don’t really care about what the minority stockholders want.
And so, companies pay dividends. It’s a double edged sword. Sure I like that ‘free’ money. But I would also like it if the company I owned a share in took that money and did something constructive with it. Ie. Diversified its income streams to be a more robust earner, bought back some of its shares, bought a competitor or even just saved so of that money for a rainy day. But that’s just me. Ultimately we as stakeholders live for the day and we would much rather eat the cupcake now than have the promise of two cupcakes later.
As with all things, be suspicious of anyone advising you how to invest your money. Even advice that seems free (like a podcast, twitter feed or indeed a blog) is fraught with personal preference, survivorship bias and perhaps most importantly colored by the ego of the dispenser. (Yes, even me, I am inclined to believe in my own infallible awesomeness) Besides the only person who can understand your risk appetite and personal circumstances is you, don’t let anyone convince you otherwise. Take some responsibility for understanding what you’re doing with your money. And if its too complicated… walk away!
Personally I like (at this point in my in life) to have several pokers in the fire. And one of those is boring companies that pay regular dividends. In an ideal circumstance you bought these guys before they developed into these late stage behemoth corporations as part of your buy-and-hold-until-you-die strategy. I tend to be quite wary of getting into companies that pay regular dividends later on in their lifespan (because… well… they tend to be expensive). Unless of course there is a market correction and they go on sale. The bigger the overall the drop, generally, the more cheerful I get. These guys are robust and have survived this long for a reason… usually there is less risk picking them up at a discount… than say more recent entries into the market. The trick is to have money that is not in the market so you can buy the stocks during the fire sale. But that is likely another another blog-post for another time.
This a series of posts I’m doing for my kids. In case I die (ie. Go Darke) and am not around to to teach them (personal) finance when the time comes. Its mostly stuff I wish someone had taught me when I was sixteen. You can find more posts like this…