ASK THE FOOL

Q: Why do some companies pay no dividends, and why would anyone invest in them? — J.L., Charlotte, N.C.

A: A company can do several things with its earnings, such as reinvest them in the business, pay them out to shareholders as a dividend, pay down debt and/or buy back shares. (Reducing the number of shares outstanding makes each remaining share worth more.) Some companies, typically those that are smaller, younger or faster-growing, often need to put all their earnings toward growth. Yahoo and Roomba maker iRobot, for example, pay no dividend, while Starbucks only started paying one in 2010.

Dividends are attractive because they offer a relatively reliable income that tends to increase over time if the company remains healthy. (The Motley Fool owns shares of Starbucks, and its newsletters have recommended Starbucks, iRobot and Yahoo) Struggling companies may reduce or eliminate their payouts, as RadioShack has done. But strong, growing firms with meager or no dividends can still reward you well, as their stock prices advance.

While some investors seek hefty dividends payers (a free trial of our Motley Fool Income Investor newsletter at fool.com/shop will introduce you to a bunch), others seek more aggressive growers. A combination can work well, too.

Foolish Trivia

Name that company

Based in Tennessee, I trace my history back to the 1878 founding of The Penny Press in Cleveland. I became one of the most successful newspaper publishers and later an operator of many local television stations. In order to become less dependent on advertising dollars, I grew into one of America’s biggest cable television operators. I sold my cable business later, to Comcast. A few years ago I spun off my local TV and newspaper businesses and kept my collection of national television brands, such as HGTV, Travel Channel, DIY Network, Cooking Channel and Great American Country. Who am I? Last Week’s Answer: McIlhenny

THE TAKE

Brewing profits

Shares of Starbucks (Nasdaq: SBUX) advanced about 40 percent in 2013 and have averaged roughly 17 percent annually over the past decade. It’s still an attractive portfolio candidate.

With more than 13,000 stores in the Americas already, it’s reasonable to expect U.S. sales growth to slow. But there’s more to Starbucks. For one thing, it has more than 19,000 stores in more than 60 countries, with much more room to grow.

Starbucks stores in China, for example, have been enjoying robust sales growth. The company opened 317 new stores there in 2013, and plans to open 750 this year. Management and investors have high hopes for India, too, as there has been a very positive customer response to Starbucks’ recent entry there.

Starbucks is also moving beyond coffee. It now owns and offers La Boulange bakery products, Evolution Fresh juices and Teavana teas. With Teavana, management believes that Starbucks can do for tea what it’s done for coffee by growing and expanding the tea industry and the tea bar concept while introducing a wide array of handcrafted tea beverages and tea-inspired food.

Meanwhile, Starbucks also offers its wares through supermarkets, and in recent years has introduced its Verismo single-cup espresso machine, its Starbucks Card mobile payment system, and more.

Starbucks stock also offers a dividend yield near 1.3 percent.