Forum Archive Index - August 2000

["Brian Brakenridge" <brianbrak@xtra.co.nz>]

For those of you who may follow the Motley Fool sites you will have seen this post already. Sorry. However I'm interested in feedback/discussion re. NZ investors very high reliance on dividend payments.

 

IMHO I believe NZ investors preoccupation with dividend yield is one of the most detrimental effects on the growth of the NZ market. In fact to be slightly contentious I will go so far as to say it has a significant effect on the growth of the NZ economy as a whole.

Warren Buffett believes that a company should retain all it's earnings if it can employ them at a rate of return that is better than an investor could get by taking delivery of those earnings via a dividend.

Surely if a company is consistently year after year realizing a tax paid ROE of >15% it must be much more attractive for the managers to reinvest that earning to the continued growth of the shareholders equity thereby in effect achieving a compounding interest of in excess of 15% if at the same time the company's Net Margin is also consistently increasing.

I argue that if a company has excellent management, a strong track record of growth and room for further profitable growth, PLEASE DON'T PAY ME A DIVIDEND.

Granted I own PFI for it's dividend but simply because we want a portion of our portfolio invested in the property sector and investing in a property company in our situation is more convenient and profitable than owning rental property.

Good growth companies shouldn't feel a need to pay dividends thereby stifling growth.

The second point I'd like to make is in regard to the '87 crash. So much has been written about it and yet I recently saw a chart which tracked the S&P500 for the past 50 years. The October 1987 was a mere blip on the screen.

Even the conservative old Consumers Institute will tell you that the stock market has consistently, over a long period of time outperformed property, fixed interest and cash. They advise that when you are saving for retirement 70% of your portfolio should be in shares and that even when you are retired you should still have up to 40% of your portfolio in shares.

So why are investors still totally preoccupied with the "crashes" or the potential for crash. I have to wonder how well individual companies and the NZ Stock Exchange market the benefits of long term equity investments.

I believe that more should be spoken about the huge difference between "trading" or "playing the market" verses "long term buy and hold" and "investing from a business perspective"

What's my point? I don't know, I just needed to get it off my chest and hopefully get some feedback.

Cheers, Brian

Pohuenui Island Lodge
Fiona & Brian Brakenridge
P. B. Havelock
Marlborough, New Zealand
Tel. 64-3-579 8161 Fax. 64-3-579 8361
Email: pohuenui.island@xtra.co.nz
http://www.marlborough.co.nz/pohuenui/