Dividends and “Widow and Orphan Stocks”
I am quoted in “Why GE’s Penny Dividend Signals a Sad Turn for Widow and Orphan Stocks” that is likely to appear in the Business Section of the Washington Post on Sunday, November 4:
“Widow and orphan stocks were designated as such for their safety and income,” said David Kass, a finance professor at the University of Maryland. “In the past, they included utilities and regulated monopolies, such as AT&T, Con Edison, Exxon, Texaco, General Motors, Eastman Kodak and IBM.”
That zaps Buffett’s Berkshire Hathaway. Even though the conglomerate has great finances, it does not pay a dividend. Buffett thinks he can increase the company’s stock price by investing the money instead of giving it to shareholders.
“Buffett likes to invest in companies that pay dividends,” Kass said. “His policy is not to pay dividends, but to own companies that do pay them.”
That’s a really interesting idea, but it makes sense. I’ve also heard interviews where Buffet talks about how he still has a mortgage on his home.
He believes that at current market rates it is a better investment to have less money tied up in his home, so he can put more money into other investments.
Again, this is an interesting idea. Buffet can borrow against his home at 4% and make 10%+ in the market. It’s just kind of surprising to hear that a billionaire still has a mortgage.