Kratos Defense Doesn’t Pay a Dividend, and Investors Should Be Glad

I love companies that pay big dividends — except when I don’t.

Don’t get me wrong. It’s great when a company earns profits and can use those profits to pay dividends. But when a company is not earning a profit, paying out what little cash it does have in the form of a dividend is crazy. No matter how much I might want to cash a check, if the company needs to employ its cash for another purpose, I’d really rather that they do that.

What better uses might a company find for its cash if not pay dividends? Well, it might use cash to buy back shares when they are undervalued, concentrating future profits among fewer shares outstanding and thus growing profit per share faster than it might otherwise grow. Or the company could use cash to pay down debt, lowering its interest costs — and thus again helping profits per share grow. Or the company might use cash to reinvest in its own business, taking advantage of new opportunities and — you guessed it — growing profits. more

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