Monday, March 14, 2005

Shiny Fish---Not

Dividends have regained some stature over the past few years, first because dividend-paying stocks held up better during the recent bear market, and subsequently as President Bush championed a tax cut on dividend income. Additionally, with a series of corporate scandals souring investor confidence, many companies have tried to woo back investors with generous dividend hikes. Judging from the zillions of words splashed through the media regarding investing and individual companies; however, we don't think dividend investing is anywhere close to becoming a way of life. At best, it is a curiosity, and that is fine with us. As long as investors play the trading game, we are almost assured of being able to find bargains among dividend-paying companies. A perfect example of this is the definition of the word dividend itself. If you look up the word in the Microsoft dictionary( you will find the first definition is bonus. That is decidedly not the first meaning in any long-established dictionary. In most dictionaries, the root of the word is described as dividere, to cut. In essence, the modern meaning of the word is unexpected bonus, ie., the peace dividend, while the ancient meaning of the word is "my cut" of the profits. In short a lot of people are walking around thinking that dividends are a bonus, while we see them with the steely-eyed focus of an accountant. The dividend is our cut--what we are due--not a shiny fish that jumped in our boat. As long as Microsoft and other modern dictionaries continue to list bonus as the first meaning of the word dividend, we are safe in our reliance on using our "cut" to value and appraise companies we own and are considering.