Fabio Paolini of Pictet Asset Management says a stock’s dividend offers no indication of its value.
In the middle of a series of articles about dividend-stock strategies, it’s good to include a contrary opinion of a money manager who questions the notion of focusing on dividends. Fabio Paolini, co-manager of the AMG Managers Pictet International Fund APINX, +0.33%, doesn’t believe dividend payouts offer any clue to the quality of a company or attractiveness of its shares.
At the end of the day a company is worth much more if you can reinvest with a high return of capital Fabio Paolini, co-manager of the AMG Managers Pictet International Fund “We want these companies to reinvest their cash flows in a profitable way, to generate a higher return.” This means if a company is paying out dividends from a high percentage of its cash flow, it may mean its management doesn’t see good opportunities to invest the cash for growth.
“The fact that interest rates are close to or below zero does not mean the stocks are more attractive. We think it is dangerous to think that way,” Paolini said. So even though these three banks are suffering from low demand for loans and low interest rates, and are paying out nearly all their earnings in dividends, Paolini believes “the franchises are good” and “the payouts are sustainable in the short term.”• Nordea Bank Abp ADR NRDBY, -0.21%Saying the dividends are sustainable over the short term isn’t the highest vote of confidence.
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