A quick scan through the Investors’ Chronicle archives confirms it: Algy Hall was not particularly fond of dividends. Time and again, this magazine’s former stock screen steward questioned the emphasis investors place on pay-outs, wondering why they loomed so large in stock pickers’ decision making.
Algy’s main argument was that shareholders have a habit of misperceiving dividends – as a management duty, a freebie, or a means to an end – when they should instead think of them from a business owner’s perspective. From that viewpoint, dividends are one of several potential uses for spare cash, such as cutting debt, funding research and development or investing in capital projects.
A company that chooses to pay a dividend is making a simple, but somewhat inconsequential capital allocation decision to shift cash from one bank account (its own) to another (the investor’s). This also suggests it could think of no better way to spend the money.