Thursday, May 24, 2012

The Intelligent Investor

It's time for another installment in my The Intelligent Investor series.

On page 294, Graham writes "One of the most persuasive tests of high quality is an uninterrupted record of dividend payments going back over many years. We think that a record of continuous dividend payments for the last 20 years or more is an important plus factor in the company's quality rating. Indeed the defensive investor might be justified in limiting his purchases to those meeting this test"

Continuous dividend payments, as well as increases, means that a company must be conservative in their own operations and plan ahead rather than just spending money on projects that won't eventually contribute to their bottom line. Dividends are the only true way for a company to reward it's shareholders since relying solely on capital gains is equivalent to hoping that someone else will come along and pay a higher price for your shares. A long history of dividend payment and increases is something I want out of a company I'm investing in for the long haul. It shows that the company is committed to shareholders and has a long term plan in place that they are executing. While I don't necessarily follow the 20 year minimum on dividend payments, I do like to see 10 years or more of dividend increases. If you strictly follow the 20 year you will significantly reduce the number of stocks in your arsenal such as Microsoft and Intel which are high on the list of most dividend growth investors. It's good to see that while many things have changed the basics of valuing an investment hasn't.

I highly recommend reading through The Intelligent Investor REV Ed. (Revised Edition) by Graham, Benjamin (Google Affiliate Ad) if you haven't already done so.  I've highlighted some of the information in the book, but there's so much more to learn.

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