No. of Recommendations: 2
I've heard the argument 'well it's the same thing, if you want to own the company why not own more of it?' To which my reply is 'I have enough of that one, I don't want more. I prefer money, directly deposited, where neither the CEO nor flash traders can get their hands on it.' No muss, no fuss, no timing, play couch potato, period. ;)
To each its own I guess.
I see cash management as being a balancing act. Some companies feel they have enough investment opportunities that they keep all the money for reinvestment. Growth. Some basically commit to paying out most of their cash flow to investors. There's a lot of that now going on in the O&G industry. Basically divesting the company.
And some blue-chip companies see their roles to be one of paying a sustainable and growing dividend that their shareholders can count out for the long term. That means they must reinvest enough to provide the future cash flow needed to both sustain and grow the dividend plus provide cash flow for the long term. The third leg of that stool is a strong enough balance sheet to keep this going through the business cycle. So they need cash reserves plus a good credit rating.
Then, if cash is left over, reinvest it in the company if that beats other investment opportunities.
That's the real world balancing act in my view - what's needed for the long term. Concentrating on growth at one end and paying out all the cash flow at the other end are just the two ends of the string. Dividend aristocrats try to operate between these extremes.
That's why I own BRK plus a couple of them. The BRK may go down and the others up when Buffett is no longer making these judgments about what to do with the money.
