Think long-term - businesses must build a growth, not just a yield, market

ANYONE who was involved in the just-past annual general meeting (AGM) season can attest to how all sorts of shareholders show up. There are the retirees who have one or two lots invested in multiple companies and treat the occasion as a way to pass the time and enjoy some free food. There are the shareholders who ask rambling questions and dominate the stand for half an hour. And there are those who publicly admit that they have not read the annual report in the last five years and they don't know exactly what the company does but they decided to attend this year's AGM because the share price performance has been so dismal.

Across all companies, one theme shines through. Retail shareholders like dividends, and the more the better. It does not matter whether the company is a trader that needs some cash as working capital, a firm investing heavily in emerging markets, or an S-chip with cash in the bank. At AGMs, there will often be at least one investor who will stand up and ask for higher payouts.

The demand for yield is understandable, and not just because these investors are retirees with few other sources of income. A bird in the hand is worth two in the bush, and reinvested dividends can compound over time to form a large part of the total return of a stock. With developed countries around the world facing slower growth, and monetary easing practised by many central banks, low interest rates are also driving the demand for yield.