Is it feasible to buy high-dividend stocks at appropriate prices solely to collect dividends?

Recently, Warren Buffett’s annual letter to shareholders was released, sparking widespread market discussion. One point that particularly stood out to me was Buffett’s illustration of his investment ‘secret weapon’—dividends plus time—using the examples of Coca-Cola and American Express: namely, long-term, sustainable dividend payments. Coca-Cola is one of Buffett’s most iconic and widely recognized investment cases. Previously, discussions about this investment often centered on Coca-Cola’s brand strength, its excellent business model, and the extraordinary returns generated by long-term holding. This article, however, re-examines the investment primarily through the lens of dividend distributions. 1. Dividends are a crucial source of stock returns Suppose a friend who has never bought stocks asks you how one makes money from stocks—how would you answer? Many people would likely say, “Naturally, it’s all about the stock price—when the price goes up, you make money.” Is this correct? I’d say yes—but only partially. In fact, stock returns consist of two components: capital gains (i.e., price appreciation) and cash dividends paid by the company. Expressed as a formula: stock return = price change (%) + dividend income. In the mature U.S. capital market, dividends are a highly valued metric for investors, and corporate dividend payouts have long become a standard practice for returning value to shareholders. Some outstanding U.S.-listed companies consistently pay quarterly dividends—even borrowing money to fund share buybacks and dividend distributions. For example, DuPont has paid quarterly cash dividends without interruption for over 100 years since its first such payout in 1904, making dividends one of the most stable income sources for investors. By contrast, China’s A-share market is relatively young, and related regulations remain underdeveloped; as a result, many enterprises have treated the stock market merely as a fundraising channel, with few willing to distribute profits to investors. Consequently, many domestic investors have overlooked dividend income altogether. However, as regulatory policies governing dividend distributions by A-share companies continue to evolve and strengthen, an increasing number of high-quality firms—including Kweichow Moutai, Gree Electric, China Shenhua, and Yili Group—are delivering consistent, long-term dividend payouts. 2. Retrospective analysis of the Coca-Cola investment A global stock market crash erupted in October 1987, dragging down even high-quality stocks across the board. Coca-Cola—long watched closely by Buffett—also suffered a sharp decline, falling from a peak of around $53 to $29 before rebounding. Buffett began purchasing Coca-Cola shares at the end of 1988, acquiring 14.17 million shares at $42 per share (P/E ratio ~30x). In 1989, he bought another 9.18 million shares at $47 per share (P/E ratio ~19x). Several years later, in 1994, he added another 6.6 million shares, rounding his total stake to exactly 100 million shares. With that, Buffett concluded his entire Coca-Cola investment, totaling $1.3 billion. This investment coincided with Buffett’s investment prime. By then, he had long overcome the psychological constraints of his earlier “cigar-butt” investing approach and had fully mastered his strategy of buying outstanding businesses at reasonable prices—focusing squarely on their future capacity to generate free cash flow. Within ten years after Buffett’s initial purchase in 1988, Coca-Cola’s stock price surged dramatically: by mid-1998, it had multiplied 13-fold, and its P/E ratio reached an all-time high of 50x.

U.S. companies repurchased $234.6 billion worth of shares in Q3—a record high—far exceeding their capital expenditures. What does this signify?

The reason many U.S. companies actively repurchase shares while rarely conducting equity financing via new share issuances lies in the fundamental principle guiding management behavior: maximizing the interests of all shareholders. I. Brief overview of U.S. corporate practices I worked for many years at a major U.S.-based chemical conglomerate. 1. DuPont typically announces a detailed annual share repurchase plan. When its stock price falls abnormally—failing to reflect the company’s intrinsic valuation—the company intervenes by repurchasing shares to support price recovery and bolster investor confidence. 2. Under normal operating conditions, the company distributes cash dividends quarterly—four times per year—ensuring shareholders directly benefit from the company’s operational results. 3. The CEO is selected by the Board of Directors from both internal and external candidates, subject to rigorous performance evaluation. His compensation is closely tied to the company’s profitability and stock price performance. 4. The CEO regularly sends emails to all employees to communicate major strategic initiatives and boost morale. 5. The CEO also places great emphasis on corporate image. For instance, in early 2000—during the height of the tech-stock boom—the CEO sent an email highlighting DuPont’s R&D personnel and budget data, underscoring that DuPont is, in fact, a technology-driven company. 6. Corporate governance is robust. Major shareholders include investment firms and mutual fund companies, which continuously monitor and supervise both operations and stock performance. 7. At DuPont’s U.S. production facilities in earlier years, executive family housing was built adjacent to manufacturing plants—a deliberate measure to constantly remind senior managers that any plant explosion would endanger not only themselves but also their families!