I'm not buying regardless. Half of the companies paying dividends are borrowing money to do it.
Richard W.
Not the best way to pick stocks. If you need income, dividends are great. If you want you portfolio to grow, dividends suck.
As someone else pointed out: you want income, you want dividends -- but if you want growth, dividends get in the company's way. Over the past 20 years or so, it would be impossible to find a bad time to buy Microsoft stock (if "long-term" hold means more than 2 years). Some companies grow reliably over long periods of time. The fact that they don't pay dividends is inconsequential.
Articles like this are easy to write after the fact. I take 'em with a heap of salt.
In times past, a high dividend often correlated with a shaky balance sheet, just as the "high-yield" bonds popularized by Michael Milken reflected above-normal risk to the investor. Likewise, the now-discredited Universal Life policies were sold with a promise of guaranteed above-market interest rates, adding 12-14% to the cash value annually. High risk must be compensated with a high return.
In today's tax environment, where individual investors pay anywhere from 0% to 38% on income resulting from dividends, corporations must be sensitive to the fact that any money paid out will enrich Uncle Sam first, the stockholders later. A strong case can be made that the company can find better uses for the taxable portion than the federal government can.
Your no-dividend, no-buy filter may be appropriate if you are seeking income. However, being pragmatic about it, aren't you also forgoing the potential of much larger gains through price appreciation? As I recall, the average price gain over the past several decades has been greater than the 5.8% nominal dividend rate cited in this article.
Ron Reagan admitted he made a mistake when he signed the 1985 tax increase bill that included making dividends taxable to both the corporation and then again to the individual, and eliminating the $100 dividend exclusion.
This article has a worthless statistic about historic dividend yields in the 20th century. Stocks actually yielded more than 30 year treasuries in the 50's to compensate for the additional risk, supposedly.
The tax change has soured the payment of dividends and made it more sensible to buyback stock (common) and eliminate preferred stocks. This is why stock yields are at record lows -- a fundamental shift in the tax code.
I still have stocks like MRK who continue to increase the dividend, but most are NOT increasing the payout -- Simple math -- 2/3 or more of the dividends end up in the IRS.
Ron made a mistake in '85 and was a big enough man to admit it.
P.S. The tax law on mutual funds was screwed up too (I don't remember when) and I once heard the founder of Vanguard, John Bogle, state that they were inappropriate for Non-Tax exempt positions.