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Investment Research Since 1978

A Winning Stock Policy for You

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Thinking about all the cash Apple is holding on to makes me wonder about its dividend policy. Some of that cash would probably be better off in the hands of stockholders. I’ve been spending some time reviewing my copy of Security Analysis by Benjamin Graham and David Dodd. I’ve had the book since the early ’90s, when I was at Babson College. What Graham and Dodd wrote in the early ’30s on dividends applies just the same today. Here’s what they had to say:

Dividend Policies Arbitrary and Sometimes Selfishly Determined. –One of the obstacles in the way of an intelligent understanding by stockholders of the dividend question is the accepted notion that the determination of dividend policies is entirely a managerial function, in the same way as the general running of the business. This is legally true, and the courts will not interfere with the dividend action or inaction except upon an exceedingly convincing showing of unfairness. But if stockholders’ opinion were properly informed, it would insist upon curtailing the despotic powers given the directorate over the dividend policy. Experience shows that these unrestricted powers are likely to be abused, and for various reasons. Boards of directors usually consist largely of executive officers and their friends. The officers are naturally desirous of retaining as much cash as possible in the treasury, in order to simplify their financial problems; they are also inclined to expand the business persistently for the sake of personal aggrandizement and to secure higher salaries.

You want to make sure you invest in companies that have your best interests in mind. One way to do that is to invest in companies that have a secure dividend policy in place. Paying you, the owner, from profits requires discipline. It also requires cash. Those two qualities are a good start in choosing the types of stocks that will generate wealth for you and not just for the executive suite.

 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.