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Which Is More Important, Earnings or Dividends?


“Dividend growth is the true signal of a prospering company.” — Lowell Miller, “The Single Best Investment”

Most Wall Street analysts believe that earnings, not dividends, are the key to the performance of a publicly traded company. After all, dividends come from earnings.

If a company wants to pay a higher dividend, the payout must come out of higher earnings. Conversely, if a company suffers from lower earnings or runs a loss, it may have to cut or eliminate its dividend.

In short, earnings come first.

Many high-growth companies don’t pay a dividend for years as they need to reinvest all their earnings to continue the company’s growth. The company will only start to pay a dividend when it matures.

Apple Inc. is a good example. It didn’t start paying a dividend until 2012.

Amazon.com has yet to pay a dividend. And, of course, Warren Buffett’s legendary Berkshire Hathaway stock has never paid a dividend.

The Magic of Dividend Investing

And yet, there is magic in dividend stocks, especially if the stock is in a growth industry, is well managed and has adopted a rising dividend policy.

The father of dividend investing is J. B. Williams, who authored a book called “The Theory of Investment Value” in 1938, based on his doctoral thesis at Harvard University.

He argued that the intrinsic value of a company was equal to the present value of its future dividends, not its earnings.

“Earnings are only a means to an end,” Williams stated, “and the means should not be mistaken for the end. Therefore, we must say that a stock derives its value from its dividends, not its earnings.”

He is famous for this ditty:

“A cow for her milk,

A hen for her eggs,

An orchard for its fruit,

Bees for their honey,

And stocks for their dividends.”

‘Earnings Lie, But Dividends Don’t’

Another book that influenced my thinking is the classic, “Dividends Don’t Lie” by Geraldine Weiss in 1988. It has been updated by Kelly Wright and is now called “Dividends Still Don’t Lie.”

You can buy it by clicking here.

Weiss and Wright contend that accountants play all kinds of games with earnings, but dividends are actual cash that the company must pay out to its shareholders. That’s real money. Earnings are all talk, while dividends are the real McCoy.

One of the most interesting academic studies in this field was done by money managers Rob Arnott and Cliff Asness in 2003 called “Surprise! Higher Dividends = Higher Earnings Growth.” This paper stated that the more a public company paid out in dividends, the more that company’s earnings grew. This is just the opposite of what traditional investment theory says.

You can read their academic paper by clicking here. They found that companies that pay rising dividends are under constant pressure to do well and keep those dividends coming.

That’s good news for our high-income strategy at Forecasts & Strategies, and we’re proving we can beat the market with less risk. In fact, I share my favorite high-yield and rising-dividend plays here in a new presentation that I put together with my publisher. Go here to get the names of these fantastic dividend investments.

Other investment experts have confirmed the miracle of dividend-paying stocks.

Jeremy Siegel, the Wizard of Wharton and author of “Stocks for the Long Run,” stated, “Dividends are the critical factor giving the edge to most winning stocks in the long run.”

And even hard-money guru Doug Casey has stated, “Dividends are an outward sign of inward grace.” Well said!

New Special 7th Edition Now Available

I am happy to announce that all of these great quotes are found in the special new 7th edition of “The Maxims of Wall Street,” which has just been released for the unique year of 2020.

It’s fun and educational to read on every page. The book is divided by topics, such as growth vs. income, contrary investing, bargain hunting, the pros and cons of gold, etc. Plus, it includes lots of stories about J. P. Morgan, Joe Kennedy, Bernard Baruch and Jesse Livermore.

“Maxims” is the one and only compendium of financial adages, ancient proverbs and worldly wisdom — it has sold over 30,000 copies.

Alex Green calls it a “classic.” It has been endorsed by Warren Buffett, Charles Schwab, Jack Bogle, Kevin O’Leary and Dennis Gartman, who said, “It’s amazing the depth of wisdom one can find in just one or two lines from your book. I have it on my desk and refer to it every day.”

For this special edition, each copy is autographed and numbered — and you get to choose your favorite number (other than one or two, which are already taken).

The price is $20 for the first copy and $10 for all additional copies — they make great gifts to clients, friends, family, investors, brokers and money managers. As Rodolfo Milani said, “I find ‘Maxims’ to be ideal gifts for my best clients.”

I pay for all shipping costs inside the United States (for outside the United States, contact Harold for additional charges — see below for details).

If you buy an entire box of 32 copies, the price is only $300 postpaid. Each book is autographed and numbered.

To buy your copy, go to www.skousenbooks.com, or call Harold at Ensign Publishing, 1-866-254-2057.

Good investing, AEIOU,

Mark Skousen

You Blew It!

The New York Times Reporting on the Death of Two Giants

By Mark Skousen

In late November 1963, The New York Times — the newspaper of record — reported the death of two giants in the world.

When President John F. Kennedy was killed by an assassin’s bullet, the news made the front page. Another giant also died on November 22, 1963, was the literary and philosophical giant C. S. Lewis.

Of the two, I would argue that C. S. Lewis has had the more profound influence in the world over the long run through his works of fiction, especially the Screwtape Letters, the Chronicles of Narnia and for his works on Christian apologetics such as Mere Christianity, Miracles and The Problem of Pain. However, The New York Times buried his obituary in the back pages.

Something similar happened on Monday, when the Times reported the death of a basketball superstar on the front page.

Kobe Bryant, 41, his 13-year-old daughter Gianna and seven others died in a fiery helicopter accident on Sunday here in Southern California.

I noticed the heavy fog Sunday morning, and it turns out that the key factor in their tragic death was their decision to take a high-risk decision to fly in heavy fog.

I have seen Kobe play and admired him as a basketball superstar who, like Michael Jordan and other athletes, learned to be a team player. He was able to put back together his marriage after a sex scandal and became a devoted husband and father. He spoke three languages, was a good businessman and was involved in community affairs. He even won an Oscar.

The Times also reported the death of Professor Clayton Christensen, 67, the Harvard University management guru and father of “Disruptive Innovation.” His obituary was found on page A20.

His work influenced Steve Jobs and a host of other tech giants. The Economist rates his book The Innovator’s Dilemma one of the top six books ever written on business management. His influence matched that of Peter Drucker.

I prefer using his term “creative disruption” rather than Joseph Schumpeter’s extreme term “creative destruction” to describe the dynamics of the capitalist system.

Like Kobe, Clay Christensen was tall (6 ft. 8 in.), played basketball and made an impact in the lives of millions. Deeply religious, he taught his Harvard students to find meaning in one’s personal life and to enjoy a successful career without sacrificing integrity, or as he put it, “not going to jail.”

Professor Christensen also had the distinction of surviving four major illnesses for over a decade — heart attack, stroke, diabetes and cancer. It was leukemia which finally overwhelmed him last week.

He is famous for this quote, “Intimate, loving and enduring relationships with our family and close friends will be among the sources of the deepest joy in our lives.”

We will dedicate a room to Professor Christensen at FreedomFest this year.

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