But if there were a company that traded at a P/E of 7-10, had no red flags like excessive debt or discrepancies between cash flow and earnings, yet paid no dividends, I'd have no qualms about investing. That actually describes Berkshire Hathaway pretty well, if its stock price were to drop a bit.
I'm arguing that it's fine to have some companies that don't pay dividends. Fine in a world where the standard is dividend paying companies. Once they become the exception, once you stop even speculating about what they would be paying if they where paying, once you start talking about, game's up. Stock becomes trading cards.
BTW, it's not just not paying. Paying 1-3% is the same sort of issue just that then it's the investors rather then the companies fault.
But then, all that says. It still works. Sort of. Baffles me.
The issue is that a situation where dividends are the norm, this keeps the system honest. Cash is harder to fake. If people own stock for dividends it's harder to get carried away.
The reality is that many companies will probably never pay dividends justifying their current valuations.
You can't just say that you've abstracted away the middle part & look at indicators of indicators of indicators forever. This isn't engineering. There is an enormous psychological element involved. You wouldn't get Uncle Khaled to invest in your shop if he visited & saw that no one walked through the door.