Are These Rising Dividends Really a Bad Sign?

The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.

A recent Bloomberg piece said rising dividends for technology stocks was a bear sign. Is that the case? John and David think the answer is: it depends. Let’s take the four big technology companies in the Dow Jones Industrial Average: Microsoft, Hewlett-Packard, Cisco, and Intel. All of their dividends have been growing -- fast! But that’s what we should expect from these large, mature companies. There are fewer investment opportunities, so management has been returning capital to shareholders.

Investors shouldn’t be looking at those technology companies, or very mature companies in general, from a growth perspective. They should be looking at them on a total return basis -- a combination of dividend yield, dividend growth, and share repurchases. That’s a big reason that Altria has done so well over the years. Despite its recent stumble, McDonald’s looks attractive from a total return perspective. It has a 3.1% yield, and its dividend is averaging about 12% growth per year, while the company is repurchasing a few percent of its stock. McDonald’s may not generate returns like a growth stock, but it has a winning combination over the long haul.

 

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David Meier has no positions in the stocks mentioned above. John Reeves has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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