There are companies we likely agree should not pay a dividend. Generally they are early stage and management feels they have significant growth in front of them and don’t want to take money out of the business.
As an investor using a bias of only wanting dividends and avoiding such companies because they don’t pay a dividend we are limiting our investment options irrationally, for a company making that is probably making a rational decision.
That is not to say all dividends are irrational, just that if the dividend policy is consistent with the stage and financials of the company, and investor excluding it as an opportunity is a poor way to make decisions.
Proponents of dividends will say that a consistent and growing dividend is a sign of a healthy company. It sure is, but so are profits, revenue, and cash flows and low debt that support that growing dividend. If revenue, profits and cash flows are growing with debt staying limited but management doesn’t pay a dividend is that a bad investment?
Companies like Coke, P&G, JPMorgan all rationally pay large dividends as their reinvestment opportunities are limited relative to their massive scale. Companies like Celcius, Crowstrike, Hims and so on are making shareholder friendly decisions by not paying dividends.
If you are going to select investments, select them on a rational basis.
TLDR: Focusing on dividends only biases selection of investment options despite in many cases being the right decision for the underlying company.
