05-31-2015, 03:47 PM
Investing based on historical dividend increases can be misled, because of “catering.” Often companies increase dividends not because of a better financial condition, but rather due to catering to shareholders’ desires.
I witnessed this behavior early in my career as a CPA. The owners of a company I worked for were taking excessive capital draws. The company ended-up paying vendors late, which hurt the credit of the company, and they barely made payroll. Obviously, increasing capital distributions are not always beneficial to a company’s going-concern and certainly do not always suggest a better financial condition.
I think it is reckless to try to predict future dividend increases with historical dividend increases. In reality a solid environmental scan and thorough financial statement analysis are required to find the most lucrative dividend increasers.
I witnessed this behavior early in my career as a CPA. The owners of a company I worked for were taking excessive capital draws. The company ended-up paying vendors late, which hurt the credit of the company, and they barely made payroll. Obviously, increasing capital distributions are not always beneficial to a company’s going-concern and certainly do not always suggest a better financial condition.
I think it is reckless to try to predict future dividend increases with historical dividend increases. In reality a solid environmental scan and thorough financial statement analysis are required to find the most lucrative dividend increasers.