A regular, steadily growing dividend rewards long-time investors for sticking around, especially in this low interest rate environment. Share buybacks cut the amount of shares outstanding, which helps boost earnings for a profitable company. But a special dividend is just a return of capital. At best, it indicates that management really doesn't know what else to do with the cash to grow their companies. At worst, it's a case of management members lining their own pockets.
So what is a good candidate for a well-rounded investment? One of my favorite core portfolio holdings is IBM. Big Blue actually has taken up its dividend 13% in 2012 and continues to use its cash to grow in key areas such as services and analytics, which is 80% of the business. Just look at how well IBM has performed relative to peer such as Dell (DELL), Intel (INTC) and Hewlett-Packard (HPQ) because it had the foresight to shift from hardware to the key area of growth. In addition, IBM increased its share buyback program in October by 75% to $11.7 billion said it plans to ask the board to authorize more in April 2013 as it seeks to improve shareholder returns.
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