Many wise investors believe that dividends are the key to long-term investing success. Warren Buffett certainly fits into that category. He doesn’t make big bets on which way a stock will move over the next quarter or even the next year. Instead, he focuses on quality companies sustaining dividends.
Buffett knows that as long as a company generates strong cash flow, is consistently profitable and is not overleveraged, then the stock should eventually rebound from any dips or even significant hits. He will sometimes add to a position if a quality company’s stock takes a significant hit. This is often where the biggest gains are made and it’s what Buffett means when he says, “Buy when there’s blood in the streets.” This quote really originated from Englishman Baron Rothschild, who made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. It doesn’t matter who is credited with the quote. The point is that two incredibly successful investors believe the same notion.
All that said, there is no rule that you must only buy dividend-paying stocks. Other opportunities do exist. In these cases, what is not offered in dividends has the potential to be made up for in stock appreciation.
The six companies below generate strong cash flow, have minimal debt concerns and reported top return on a three year annualized basis. All of these are positive signs. They also operate in tech and biotech which is one of the market’s top areas for growth. The information below should be seen as a starting point for your own research. (For more, see: The Biggest Biotech Companies.)
Quality Stocks Without Dividends
The chart below includes free cash flow, debt level comparisons, total return, and price to earnings.
|Name||Ticker||$ Price||D/E||D/Capital||FCF TTM ($M)||FCF/
|% Total Return
|% Total Return
|Alphabet Inc A||GOOGL||1,104.49||0.02||4.88||19715.00||19.84||8.47||17.57||47.90||22.78||Technology|
|Amazon.com Inc||AMZN||1,763.00||0.70||15.43||8827.00||4.35||72.79||47.13||142.41||63.69||Consumer Cyclical|
|Booking Holdings Inc||BKNG||1,799.22||0.75||2.92||4974.85||33.50||-7.14||10.73||32.46||17.61||Consumer Cyclical|
|Edwards Lifesciences Corp||EW||141.84||0.19||10.11||772.00||23.19||26.52||23.55||46.67||27.40||Healthcare|
|Facebook Inc A||FB||152.48||NA||7.51||17666.00||41.79||-11.22||18.04||23.28||18.38||Technology|
Source: Morningstar as of October 12, 2018
Another important factor is that all of the companies listed above can afford to pay a dividend in the future. They might not want to at this point because they’re seeing top-line growth. If any of these companies slow down on the top line and wants to attract more investors in the future, don’t be surprised if a dividend becomes a reality.
The Bottom Line
If you’re seeking slow and steady gains in the stock market, then you might want to consider looking into dividend-paying stocks first. However, if you want to diversify your portfolio a little, then there are strong non-dividend paying companies out there. While this doesn’t always equate to stock appreciation, most savvy and experienced investors focus on the underlying company, not what the stock is doing right now. (For more, see: Stock-Picking Strategies: Fundamental Analysis.)