U.S. Companies Should Raise Dividends

We view our task as investing in businesses, not stocks. ... Our fundamental premise is that these are businesses, and we are taking a stake in them. And, oh, by the way, they just happen to be publicly traded. And, yes, it's fine that these businesses reprice every day in the stock market. But the fact that our holdings are publicly traded is, for us, a matter of convenience. It is not the goal, fundamentally, to buy low, sell high, and repeat frequently. For us, the goal is to be a business owner.

If you are going to be a minority owner of a publicly traded business, your compensation for putting up that capital, and for becoming a business owner, is in the form of the dividend. So we look at the dividend and the dividend's growth. In its most simplified form, only a few key numbers are important, and it turns out that the dividend yield is really what drives the overall equation. Also part of that equation: What is the growth of the cash stream, and what is the discount rate? This could be in regard to an apartment building, an oil well, a chain of dry cleaners, or a publicly traded company. What's the cash stream versus the purchase price and/or the yield? So we try to quantify that.

Source: Motley Fool

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