The Intelligent Investor
Module Units
- 1. Introduction
- 2. Investment Versus Speculation
- 3. The Investor And Inflation
- 4. A Century Of Stock Market History
- 5. General Portfolio Policy: The Defensive Investor
- 6. The Defensive Investor And Common Stocks
- 7. Portfolio policy For The Enterprising Investor – To Avoid
- 8. Portfolio Policy For The Enterprising Investor: To Do’s
- 9. The investor And Market Fluctuations
- 10. Investing In Investment Funds
- 11. The Investor And His Advisers
- 12. Security Analysis For The Lay Investor: General Approach
- 13. Things To Consider About Earning Per Share
- 14. Stock Selection For The Defensive Investor
- 15. Stock Selection For The Enterprising Investor
- 16. Convertible Issues And Warrants
- 17. Four Extremely Instructive Case Histories
- 18. Shareholders And Management: Dividend Policy
- 19. “Margin Of Safety” As The Central Concept Of Investment
Shareholders And Management: Dividend Policy
Shareholders should always ask questions to the management when:
a) When the results are unsatisfactory.
b) When results are poorer than other companies of similar stature.
c) When a company's market price has been unsatisfactory in the long run.
In the last 20 years, the "profitable reinvestment" theory has gained popularity, i.e., instead of paying all of the dividends to the shareholders today, a company can reinvest the money in its business to generate more profits.
Investor sentiment is very unpredictable in this matter and more than 1 view can be generated for dividend policy.
Graham believes a shareholder should demand:
A) A normal pay-out of earnings (say 2/3rd) of the total earnings in the form of a dividend.
B) A clear-cut demonstration, that the reinvested earnings will lead to better per-share earnings in the near future.
C) Most of the time the companies which do not want to pay dividends are because they would like to clear out their outstanding debts first. This shows a weak mentality of the firm and its inability to generate enough cash to keep its shareholders happy.
A stock split shouldn't really have an impact on how dividends a shareholder receives ultimately. A stock dividend, however, is subject to different views because the share values do get diluted which might be less than what a shareholder would have received if a cash dividend was given.
Graham also suggests that the independent directors of a company should also be responsible and should put up a comment on the dividend policy to the shareholders.
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