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The Perfect Company Does Not Pay Dividends

Dividends are important, but it is necessary to understand the concept. Maximizing your profits does not depend on investing in companies that pay high dividends. The perfect company does not even pay dividends. Why? Because of simple mathematics.

Dividend season begins.

It has never been a characteristic of a company that has piqued my interest. Yet, after more than a decade in the financial industry, I am still amazed at how much dividends fascinate the investment community. There seems to be something so alluring about dividend income that it often tempts investors to disregard common sense or be encouraged to do so by the investment industry.

Dividends or income strategies are not important to me as a stock investor.

Why? For simple mathematical reasons.

But let’s look at dividends first.

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Chart 1: The compounding effect of reinvested dividends

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