jad, thought Kwestions for you ... No eKawshuns allowed ...
along this line of thought
"BRK has not paid a dividend recently and has no intention of paying one anytime in the near future,"
What is The Issue about this that maKes it so KritiKal?
What happened in 2008/2009 that made it so disastrous for Buffey and played a KEY role in BRK's multi-yr underperformance?
What did Buffey do to solve the problem and get BRK stoKK baKK on an upward trajektory?
Note: the AAPL debate has same Kritikal point.
Note 2: I don't thinK I have ever heard anybody mention it in either the BRK or the AAPL debates.
Note 3: I have heard Tom Gaynor maKe the KritiKal point Klearly when he summarizes his investing process, into 4 steps I thinK he uses. It is one of his 4 Kriteria.
ps: put down the reverse polish notation and THINK
You can blame my fixation on Dividends on two people, WEB & JBW.
In his 1992 letter WEB made the "mistake" of introducing me to JBW when he wrote:
"In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset."
(Which wasn't, by the way, exactly what JBW had written!)
DEFINITION OF AN INVESTOR
As will be shown later, the longer a buyer holds a stock or bond, the more important are the dividends and coupons while he owns it and the less important is the price when he sells it. In the extreme case where the security is held by the same family for generations, a practice by no means uncommon, the selling price in the end is a minor matter. For this reason we shall define an investor as a buyer interested in dividends, or coupons and principal, and a speculator as a buyer interested in the resale price.
- John Burr Williams, "The Theory of Investment Value", 1938, pages 3-4.
Earnings are only a means to an end, and the means should not be mistaken for the end. Therefore we must say that a stock derives its value from its dividends, not its earnings. In short, a stock is worth only what you can get out of it.
Reference: Williams, John Burr. The Theory of Investment Value. 1938. Page 57.
Undistributed earnings reinvested in a business cannot properly be considered a second form of payment to its owners. The money thus diverted remains at risk. It may finally fail to earn any profit at all. Unless it produces dividends sometime in the future, it comes to nought. Thus it is only actual dividends as such, paid in cash on common stock by companies not subject to regulatory ceilings on their earnings – it is only these particular dividends, to repeat, that drive the whole engine of industry.
The market value of a common stock is set by marginal opinion concerning true worth. Investment value, however, is set by the present value of future dividends. The two seldom coincide. To forecast dividends and estimate their present value is the task of the investment analyst.
Dividends rather than assets or earnings are what really count. After all, what good are assets without earnings, or earnings without dividends either now or later? If Congress were to levy a tax of 100% on dividends, with no hope of repeal, all stocks would become worthless. No matter how large their earnings, their prices would be zero. Clearly dividends determine value.
Reference: Williams, John Burr. Interest, Growth, and Inflation or The Contractual Savings Theory of Interest. Circa 1964-1974. Pages 141-142.
Industrial enterprises, however, have the habit of going to seed eventually, with only the best being able to survive for two or three generations.
- John Burr Williams, "The Theory of Investment Value", 1938, page 406.