There was no shortage of topics for shareholders to talk about at truck manufacturer Paccar Inc.’s annual meeting last week — the state of the economy as it affects the company’s business, expansion plans in new markets, turmoil in Brazil (one such market into which Paccar has expanded), even the big charge against earnings, to set up a reserve for the possible outcome of a European Commission investigation of truck manufacturers on price-fixing allegations, which resulted in a quarterly loss.
But shareholders had one specific topic they wanted to discuss with management: Dividends.
Almost every question in the Q&A portion of the meeting had to do with dividends: What’s your formula for dividend payout as a percentage of cash flow? Do you have a dividend reinvestment program? Why not return money to shareholders in the form of higher dividends instead of stock buybacks? Actually, that last one was more in the form of a comment than a question, but it was in keeping with the theme of the session.
Kudos to the Paccar shareholders, especially individuals with comparatively small stakes, for taking advantage of the one opportunity they have to directly question management. It’s been an ongoing peeve in this space that investors rarely interrogate company executives about how their investment is being managed, especially at companies that could use some grilling.
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Dividends are the unglamorous, even dowdy, side of stock investing. Everyone wants in on the next high-flying tech stock — the next Microsoft, Google or Facebook. Dividends? Who cares, we want to double or triple our money in months, maybe weeks!
Still, many people care about dividends. They like the steady, predictable stream of dividend income, and are perfectly content to leave the speculative game of trying to find, and ride, the next stock rocket to others.
Dividends get more attractive when interest rates are so low on savings accounts and bonds as to approach zero, and when the market isn’t delivering stupendous returns through price appreciation. Both happen to be the case currently; utilities, the exemplar of dividend stocks, were for a time the best-performing sector in the market.
Even tech companies see the value of dividends. Microsoft started paying a regular dividend in 2003; Apple restored a regular quarterly payout in July 2012.
Paccar has paid a dividend every year since 1941.
Last year the company increased its regular quarterly dividend by 9 percent; the dividend rate more than doubled over the past 10 years, according to the annual report. In addition Paccar has a history of paying special dividends toward the end of the year; in 2015 that was $1.40 a share, the highest in company history.
That’s what keeps investors sticking with Paccar. They know truck manufacturing — Paccar is the parent of the Kenworth, Peterbilt and DAF nameplates — is a highly cyclical business. While the company has made a profit for 77 years in a row, the stock price tracks those cycles as well as general investor sentiment.
What matters to them is not the share price but the dividend. That was a point made by the gentleman who raised the issue of stock buybacks. He described himself as a long-term buy-and-hold investor for whom the per-share price isn’t meaningful because he’s not looking to sell. Stock buybacks, which are designed to boost the per share price, do nothing for him. He wants his dividend.
Maybe other investors will want them too, especially if the Fed keeps sitting on interest rates. Paccar’s current dividend yield, as reported on Yahoo Finance, is currently 1.7 percent, and that’s just counting the regular dividend.
Then again, maybe demographics will kill off interest in dividends, or investing generally. Many individuals, whipsawed by the dot-com bust, the Great Recession and bull markets before and after, have given up on the time, attention expense and risk tolerance needed for picking individual stocks and just park their money in a broad-market index fund. Millennials working in the fast-growth tech sector are more likely to track the price performance of their own company’s stock, if they’re getting shares and options as part of compensation, than to be asking about dividend payout rates.
Should that trend continue, the eventual outcome won’t be questions like “how much is your dividend?” but “what’s a dividend?”
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.