Three hundred years ago investors would invest their funds to back a merchant adventurer or business on the basis that the profit would be divided among them pro rata to their investment - the dividend. Then, and at the end of each venture, the original investment was repaid.
Notable exceptions were London's South Sea Bubble and Scotland's Central American Darien Project where everyone in Scotland lost nearly everything. (Royal Bank of Scotland repeated this in 2007).
Capital markets developed with the industrial revolution and the creation of major companies, partly financed from retention of profits after investors had received modest dividends with the expectation of capital appreciation on their initial investment.
The latter half of the 20th century saw many businesses reach optimum size and rather than pay out the profits in increased dividends, Directors of companies diversified using the surplus cash to buy other unrelated companies and create industrial conglomorates, most of which have vanished after incompetent management, along with a lot of investors' capital.The worst example of this period was one of the U.K.'s largest companies GEC which stashed away £5 billion of shareholders cash in bank deposits as there was nothing in the same business to invest in, according to chairman Arnold Weinstock. When he retired the new board blew the lot on acquiring diverse companies in the next five years and shareholders lost virtually everything!
Moving forward to present day we have a new situation with many companies. Now, when there is surplus cash from exceptional profits, asset sales, working capital surplus to requirements and a business is at its optimum size then companies are beginning to pay Special Dividends to shareholders, which they in turn can reinvest if they wish.
With our Key INVESTMENTS we have seen extra dividends from IHG after hotel sales, the same from COMPASS from unneeded working capital, large special payments from PERSIMMON, BERKELEY and TAYLORWIMPEY with surplus cash as they operate at optimum size. In the insurance business we have DIRECT LINE saying they will repay all surplus cash left above regulators' requirements -this year possibly £430 million.
This evolution in dividend returns to investors is most welcome as we grow our investment portfolio and determine future strategy for our KEY INVESTMENTS. And there is an added bonus for all investors like us - we then have some additional funds to support the latter day 17th century merchant adventurers of today: the high tech start ups of the 21st century.