I like dividend-paying companies for two reasons. As a self-funded retiree with virtually no other source of income I need some money to keep body and soul together. The other reason is that is, in my view, that firms with high ROEs cannot grow at that rate.
The Sustainable Growth Rate is SGR = ROE x (1-P), where P is the dividend payout ratio, and so if no dividends are paid, and ROE is 20%, then growth would be a compounding 20% a year. No firm can grow at that rate in the long term. If management has piles of money, they start doing stupid things.
There are times when it makes sense to lower the dividend payout ratio. For example, it makes no sense from a shareholders perspective to receive a generous dividend, and then for the want of cash the company asks an underwriter to dilute the existing shareholders value by offering shares at a steep discount to his top-end-of-town buddies.
CCP Price at posting:
$28.20 Sentiment: Hold Disclosure: Held
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