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Dividends play a significant role in Warren Buffett's investment strategy. He prefers buying companies that, over time, reduce the amount he has invested in them by sending him some of their free cash flow, which is essentially dividends. This strategy lowers risk as it allows for a return of investment over time, irrespective of market fluctuations. It also raises the overall return as the dividends can be reinvested to compound the growth. However, Buffett doesn't buy based on whether a company pays a regular dividend, but rather on whether management is using its free cash wisely.
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Do you long for the day when you can work less and travel more? Do you fear that you’ll never have enough money to be able to retire? By following War...
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One of Buffett's biggest secrets to lowering risk and raising overall return is buying companies that, over time, reduce the amount he has invested in them by sending him some of their free cash flow – in other words, dividends. Ideally, you will get all of your money back through dividends. However, companies are under a great deal of pressure to keep the dividends paying out, no matter what; and sometimes that is not the best use of their funds. Don't buy based on whether a company pays a regular dividend, but rather on whether management is using its free cash wisely.
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