The Perfect Company Pays No Dividends
April 16, 2026
8 min read
"Compound interest is the eighth wonder of the world. He who understands it, earns it. He who does not, pays it."
– Albert Einstein
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CHF 25 billion.
That's roughly what Nestlé, Roche, and Novartis alone paid out to shareholders this dividend season. Add Zurich, Swiss Re, ABB, and the rest of the SMI, and the total rises to over CHF 50 billion. Flowing from corporate balance sheets into private bank accounts. Celebrated. Reinvested in something else. Or simply spent.
Switzerland loves dividends.
The "Dividend Aristocrats" of the SMI — companies that have paid out for decades — are the bedrock of countless retirement plans. Ask any Swiss investor what they look for in a stock, and "stable dividend" will be in the top three answers. Reliably.
But here is the question almost no one asks: is that money actually working for you?
The financial industry will tell you yes. They will show you charts of "total return with dividends reinvested" stretching back to 1970 (Chart 1). They will sell you "High Dividend ETFs" and "Income Strategies." They will reassure you that a 3% dividend is your reward for owning quality.
And yet — mathematically — they are wrong.
Not slightly wrong. Fundamentally wrong. Because the math behind dividends, when you actually do it, reveals something uncomfortable: the perfect company doesn't pay them. And the companies that compound the most over decades — Berkshire Hathaway, Alphabet, Hermès, ASML — pay either nothing or barely anything.
This week, we break it down.
Why dividends feel right. Why they aren't.
And what to look for instead.
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Chart 1: The Compounding Effect — Reinvested Dividends vs. Spent Dividends Over 40 Years
The Reinvestment Trap Almost Everyone Falls Into
Look at chart 1 carefully. It tells you everything.
From 1970 to 2025, the MSCI World index delivered four very different outcomes — depending entirely on what you did with your dividends:
- Price only (no dividends at all): 6.6% per year
- Dividends received but spent: 7.2% per year
- Dividends received and held in cash: 8.5% per year
- Dividends received and reinvested into equities: 9.6% per year
Read those numbers again. The difference between "spending your dividend" and "reinvesting your dividend in stocks" is 2.4 percentage points per year. That sounds small. It isn't. Over 55 years, the reinvested portfolio grew to 14'458. The spent-dividend portfolio grew to just 4'244.
Same index. Same companies. Same horizon. Three times the wealth — simply because one investor reinvested every franc and the other didn't.
Investors love the idea that dividends drive long-term returns. But the data only supports that claim if the dividends are immediately reinvested. The moment you spend them, the compounding miracle collapses (chart 2).
This is also a key reason why, at arvy, we focus as much as possible on investment vehicles designed for capital growth with accumulating share classes (automatic reinvestment of dividends) — so as not to disrupt the compounding effect, to remain in the market automatically, and to avoid having to worry about what to do, either emotionally or practically.
And here's the catch most retail investors miss: very few people actually reinvest. They take the cash. They feel rewarded. They buy something nice. Or it sits in a savings account earning 0.0% in CHF.
Mathematically, they have just opted out of the most powerful force in finance.
The rule is simple: if you own dividend stocks, reinvest every single franc the moment it lands. No "I'll do it next month." Otherwise you leave 2–3% per year on the table — every year, for the rest of your investing life.
But why is reinvesting so hard in the first place?
Because dividends were never designed to be reinvested. They were designed to feel good.
Here comes the psychological trap.
Chart 2: Never interrupt compounding
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Join 12k+ readers →The Psychology of the Dividend-Bird in the Hand
Dividends feel safe. That is their entire appeal — and their entire trap.
A bird in the hand is worth two in the bush, the saying goes. And nowhere is that more emotionally true than in dividend investing. When the stock market is volatile, when your portfolio is down 20%, when the headlines scream recession — your dividend still arrives. In the US, quarterly. In Switzerland, annually. But always, reliably. CHF 3'000 from Nestlé. CHF 2'500 from Novartis. Cash in your account, regardless of what the market does.
It feels like income. It feels like reward. It feels like something you earned.
But here's the part the dividend marketing never mentions: that money was already yours. The day Nestlé pays out CHF 3 per share, the stock drops by CHF 3. You didn't gain anything. You simply moved capital from one pocket (your shares) to another (your bank account). Net change: zero.
And then come the taxes.
In Switzerland, dividends are taxed as income at your marginal rate. For most investors, that's 25-35%. So that CHF 3 dividend? It becomes CHF 2 in your account. The remaining CHF 1 is gone forever — paid first by the company in corporate tax (Nestlé already paid Swiss tax on its profits before distributing them), then again by you in income tax.
Double taxation. Built into the system.
Compare that to a company that retains its earnings and reinvests them. No dividend. No tax event. The full CHF 3 stays inside the business, compounding tax-free until you eventually sell — at which point you pay capital gains tax (in Switzerland: zero for private investors).
Read that again.
Zero.
For private investors. In Switzerland.
The math gets even more brutal when you trace where the money goes (chart 3).
- Imagine a company generates CHF 100 in profit.
- The average S&P 500 payout ratio is 40%, so it pays CHF 40 to you and keeps CHF 60.
- After 30% income tax, that CHF 40 dividend becomes CHF 28 in your pocket.
- Meanwhile, the CHF 60 retained inside the business gets revalued at the market's typical 4x book value multiple — translating into CHF 240 of market value for you as a shareholder. Total: CHF 268.
- Now imagine the company had retained the full CHF 100 instead. CHF 100 × 4x = CHF 400. Same profit. Same business. CHF 132 more in your pocket — simply because no dividend was paid.
That dividend cost you 33%. In just one year. Before compounding even kicks in. Don’t forget: The company can reinvest its profits (assuming, of course, it has the opportunity to do so) and grow them even further internally.
“La cerise sur le gâteau,” my relatives would say, as they take a sip of Fendant.
And yet, Swiss investors continue to celebrate when their high-dividend stocks pay out. The financial industry continues to push "Dividend Income Strategies" with high yields and low growth. Banks make money on the transactions. Tax authorities make money on the distributions. And investors make less than they think.
It feels right. It is mathematically wrong. But enough with the criticism.
Dividends can be pretty good.
Let's see when.
Chart 3: Capital flows inside and outside the company
The arvy Take — When Dividends Make Sense (And When They Don't)
Let's be fair. Dividends aren't evil. They have their place.
And the perfect company does not exist.
That much is clear.
A rising dividend over decades is a real signal of business quality. It tells you a company has the cash flow, the discipline, and the management to reward shareholders consistently across cycles. It can be a sign of resilience. It can impose discipline on management that might otherwise waste capital on bad acquisitions. A growing dividend reflects resilience and adaptability.
That's true. But it misses the bigger picture.
The best companies — the ones we want to own — don't need a dividend to prove their quality. Idexx Labs doesn't pay one. Heico pays a token. Hermès pays modestly. Berkshire Hathaway (which we do not own) has never paid one in 60 years. These are not low-quality companies. They are the most extraordinary compounders of our generation. Because they reinvest every franc internally, at returns that no shareholder could match externally.
Here's the arvy framework:
- Avoid high-yield trap stocks. A 5% dividend yield is almost never a gift. It's a warning. It usually means the stock has crashed (so the yield mechanically rose), or the business has no growth prospects (so all cash flow gets distributed). High-dividend ETFs are full of banks, utilities, telcos, and oil companies — sectors with structural headwinds and only selected compounding power.
- Prefer dividend growth over dividend yield. A company that grows its dividend by 15% per year for 15 years is far more valuable than one paying a fat 5% today. Visa started its dividend at 4 cents in 2008. Today, that same investment yields 14% on cost. The yield isn't the point. The growth rate is. As chart 4 shows, a dividend income growth strategy offers superior returns compared to high dividend strategies, and the drawdowns in times of stress – such as the first Covid shock in March 2020 – are considerably lower.
- Best of all, prefer no dividend with high reinvestment. If a company can reinvest at 15-20% returns on capital, every franc paid out is a franc that could have been compounding for you. The perfect compounder keeps the cash and turns it into more cash. Of course, such companies aren't a dime a dozen.
- And if you must take dividends — reinvest every single one. Immediately. The chart 1 numbers are not optional. They are the difference between getting rich slowly and not getting rich at all.
This dividend season, when your Nestlé payout hits your account, ask yourself one question: would I rather have CHF 3'000 in cash today, or CHF 12'000 in compounded value in 20 years?
The math is not up for debate. Only the psychology is.
«Compound interest is the eighth wonder of the world,» Einstein said. «He who understands it, earns it. He who does not, pays it.»
And since sports analogies work remarkably well in investing — and we just witnessed the Super Bowl — one final quote to close. It comes from Vince Lombardi, the legendary NFL coach who won the very first Super Bowl in 1967 with the Green Bay Packers. The trophy has carried his name ever since:
«Perfection is not attainable. But if we chase perfection, we can catch excellence.»
We will never find a perfect company. But an excellent one — we find time and again.
And that is more than enough to put the eighth wonder of the world on your side.
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Chart 4: Dividend Growth vs. High Dividend vs Ultra High Dividend (Quality > Level of Dividend)
