Have Your Cake and Eat It, Too

From our earliest days in childhood, we've been drilled with the fact that we can't have our cake and eat it, too.

So why, as a grown-up, would I think that this long-established paradigm has changed? Well, it really hasn't, except that I believe I've found some investments that, counter to prevailing logic, offer cake both now and later. That's something readers of The Millionaire Zone like to see.

When I invest in a company, I seek rewards or returns on my invested capital. Now, popular investing mantras hold that you can either have your rewards today in the form of dividends, or in the future in the form of realized company growth. But usually not both.

Why? Because growing companies need capital to finance the growth, and the most economical source for that capital is internally generated funds -- reinvested earnings. If the earnings are reinvested, there isn't much left over to pay you as a dividend.

And many investors feel that paying a dividend sends a signal that a company doesn't have profitable growth opportunities. So some companies don't pay dividends to avoid sending this signal, but then throw away the cash with ventures or projects that don't really make sense.

If I have a choice, I prefer companies that pay at least some dividends. It's my capital, and I want at least some return on it now. If company management and employees are being rewarded for the company's success, I feel I should be, too.

Actually, what I really believe is that a well-managed company should pay its capital suppliers a decent return now and hold some capital in reserve to finance profitable projects. It keeps company management honest.

Management is then compelled to make the most of what they have left over -- no waste, please.

Click here for the video version of this story from Jennifer Openshaw.