High Dividend Yield Stocks? - Part 7

Read? High Dividend Yield Stocks? - Part 6

Next obvious question to ask:

"Is high dividend yield stock at 10% make a better investment than the one at 6% over longer horizon?"

Let assume:

Company C pays out 90% of its earning and that gives you a 10% dividend yield while company D pays out only 30% of its earning and that only gives you 6% dividend yield.

Which company do you think is a better investment over longer horizon?
What is your answer?

C or D?

Management Mind

Most CEOs if not all will know that most investors love dividends. The more dividends the merrier.

CEO doesn't need much of a brain to give out most of its earning as dividends. It is rather easy to do that!

Do you think that those CEOs choose to retain most of the company's earning to build up internal resources instead of giving out most of the company's earning as dividends to make most investors happy are dummies?

Company Future Growth

It is too simplistic to think that Management can grow the company without pumping in more financial resources. Where do you think the additional financial resources come from?

Three possible sources:

1. Retained earning
2. Debts
3. Equities

So those with less retained earning will have to turn to more debts and/or equities to fund its future growth.

Long-term company evaluation

Over long-term the market is a forward looking mechanism, it will most likely to evaluate the companies higher when companies have shown better visibility of higher future earning through their growth capacity.

Lastly, my Answer

I still don't like Company C even though I am hungry for dividend yield.

You leh? What is your final answer?

C or D?