Many wise investors believe that dividends are the key to long-term investing success. Warren Buffett certainly fits into that category. He doesn’t make big bets on which way a stock will move over the next quarter or even the next year. Instead, he focuses on quality companies that pay dividends.
Buffett knows that as long as a company generates strong cash flow, is consistently profitable, and is not overleveraged, the stock should eventually rebound from any dips or even significant hits. He will sometimes even add to a position if a quality company’s stock takes a significant hit.
This is often where the biggest gains are made and it’s what Buffett means when he is reported to say, “Buy when there’s blood in the streets.”
This quote is also attributed to an 18th-century Englishman, Nathan Rothschild, who expanded his fortune hugely by buying in the panic that followed the Battle of Waterloo. In the end, it doesn’t matter who is credited with the quote. The point is that two incredibly successful investors believe the same notion.
Understanding Stocks that Don’t Pay a Dividend
There are only two ways to make money in the stock market. There are companies that pay regular dividends to their shareholders, essentially rewarding their owners with a share of the company’s profits. There are stocks that increase in price, giving their shareholders the opportunity to cash in.
The best of the companies that don’t pay dividends are fast-growing businesses that invest all of their profits in new growth and business expansion. They don’t want to devote any of their profits to dividends. But they hold the promise that their investors will achieve a big price gain when they sell shares down the road.
The five companies below generate strong cash flow, have minimal debt concerns, and reported top returns on a three-year annualized basis. All of these are positive signs.
All operate in tech and biotech, which are top areas for growth. The information below should be seen as a starting point for your own research.
Quality Stocks Without Dividends
The chart below includes free cash flow, debt level comparisons, total return, and price to earnings.
| Name | Ticker | $ Price | D/E | D/Capital | FCF TTM ($M) | FCF/ Revenue | % Total Return 12 Month | % Total Return 3 Year | P/E TTM | P/E Forward | Stock Sector |
| Amazon.com Inc | AMZN | 202.55 | 0.52 | NA | 42.95 | 32.22 | 41.49 | 4.55 | 79.55 | 39.46 | Consumer Cyclical |
| Biogen Inc | BIIB | 160.00 | 0.41 | NA | 1.77 | 1.24 | -30.33 | -16.19 | 25.72 | 15.77 | Healthcare |
| Booking Holdings Inc | BKNG | 4,970.87 | NA | NA | 8.5 | 7.00 | 60.26 | 27.64 | 25.09 | 20.65 | Consumer Cyclical |
| Edwards Lifesciences Corp | EW | 67.78 | 0.07 | NA | 0.49 | 0.63 | 1.12 | -16.57 | 32.59 | 27.73 | Healthcare |
| Meta Platforms Inc. | META | 554.07 | 0.30 | NA | 52.10 | 43.85 | 66.99 | 16.92 | 31.24 | 20.76 | Communication Services |
Source: Morningstar as of November 18, 2024
Another important factor is that all of the companies listed above can afford to pay a dividend in the future. They might not want to at this point because they’re seeing top-line growth. If any of these companies slow down on the top line and wants to attract more investors in the future, don’t be surprised if a dividend becomes a reality.
The Bottom Line
If you’re seeking slow and steady gains in the stock market, then you might want to consider looking into dividend-paying stocks first. However, if you want to diversify your portfolio a little, then there are strong non-dividend paying companies out there. While this doesn’t always equate to stock appreciation, most savvy and experienced investors focus on the underlying company, not what the stock is doing right now.