[quote=garysears]I’ve never really understood why the “buy and hold” investment crowd invests in stocks that don’t pay a dividend, or have a realistic expectation of paying one in the future.

I’m probably not smart enough to get it but it seems to me the only reason you would own a company would be to make money. So if you are a buy and hold person, you will get paid while holding the stock through dividend.

The only reason you would buy a stock that doesn’t pay a dividend is on the assumption that some day IT WILL.
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You might want to ask this of the folks who have owned Berkshire Hathaway for the past 40 years… and haven’t received a dime in dividends.

The issue is not how much the company IS PAYING in dividends – it’s how much the company is CAPABLE of paying in dividends in the future. (Think of a company that retains all of its earnings over 50 years and then sells out to an acquiror. The acquiror bought the company not because of dividends but for the free cash flow it generates. But the shareholders of the acquired company finally got their “dividend” in the form of a balloon payment when the company sold.)

The payment of dividends is situation specific – some companies should pay more, some should pay less, and others should pay none, it just depends on the circumstances. Generally, however, I favor a higher dividend payout because most companies don’t do a very good job reinvesting their retained earnings. So paying out dividends is a good form of discipline – it forces them to think really hard about capital allocation decisions, which is a good thing. But there are plenty of “good” companies out there that have no business paying dividends.