Monday, 9 April 2007

Dividends

There's a good forum post over on Zecco.com today asking 'Are Dividends Evil?' Zecco is a relatively new cheap online trading site in america. I keep visiting from time to time as the forums are quite active and I keep hoping that they will announce international trading.

The poster defends the view that dividends are the best use of spare money earned by a listed company. Something I whole heartedly believe in. After all, if you've mistakenly invested in dross like I have (eg. BP and HSBC) then the only thing you have to look forward to is the half yearly or quarterly dividend payment to make the pain of the continually falling share price go away.

In particular the poster argues that paying a dividend prevents the company :
- making share buybacks, which I believe is a ridiculous waste of money
- giving more shares to directors
- being spent by the company on rubbish schemes or charity which has nothing to do with growing the business

Dividends are good. They justify your belief in a company; they are the price the company should pay for your hard earned cash, and you should never give away your cash without it earning you more in return.