Dividends disappearing so fast my head is spinning!

[haha]

Even easier to see.. you have 1 share of xyz at 1.00 .. it rose 4% and is now 1.04... they pay a 4% dividend.... you get .04 and your share is 1.00 now


the none dividend paying stock was 1.00 and did not pay out a dividend and also rose
and is now 1.04.... i could sell the same 4 cents off and have the same thing

Mathjak, I suppose that by some theory you could be correct. But by long history you are not. See the post by DaLoanBoy above.

Ha

 

[Bikerdude]

I believe I read an article that predicted the S&P500 dividend would be cut by 13% this year. While not great news its not the end of the world. I'll let you know how my dividends hold up in March.

 

[Zathras]

LOL, just while reading this, I heard the news CHUBB (insurance company) just raised their dividend 6.1%.
Running_man, excellent post, well spoken and great details.

 

[mathjak107]

Mathjak, I suppose that by some theory you could be correct. But by long history you are not. See the post by DaLoanBoy above.

Ha

Yep ha ha, that was exactley my point... thru smoke and mirrors the companies that sent you some of your money back some how became a self fulfilling prophesy..... for no real sound reason those companies got all the attention and grew faster then the companies that didnt give away the company assets.......

people began to think of those dividends as if they worked like interest from a bank and sooooo the rest is history as data shows dividend paying stocks out performed in the past

 

[Gpond]

Fed to banks: don't use bailout funds for dividends

 

[Running_Man]

Yep ha ha, that was exactley my point... thru smoke and mirrors the companies that sent you some of your money back some how became a self fulfilling prophesy..... for no real sound reason those companies got all the attention and grew faster then the companies that didnt give away the company assets.......

people began to think of those dividends as if they worked like interest from a bank and sooooo the rest is history as data shows dividend paying stocks out performed in the past

I don't think it is that at all, if the money is kept in the business you need a profitable way to invest it. Most companies can self-fund fine at 50-75 percent of earnings for investment. When you add the next 25-50 percent in then companies will begin to look outside their present line of industry or move into the lesser profitable areas in order to increase their market share. As the size of the company grows faster than the industry they are in, the growth rate of the company will naturally slow.

Without a dividend to provide an alternate way to value of the business, (think of dividends as being a corporate I-bond) the slowing growth rate will result in a reduced PE over time. In my opinion the choices a dividend policy enforces in the long run -- the dividend paying company can maintain a more level percentage of growth than one that invests all of their income into their industry.

 

[Gpond]

FDIC: Problem Banks Up 50% in Fourth Quarter

Regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.

 

[Texas Proud]

I don't think they are "hoarding cash". Jamie Dimon said he wanted to repay the TARP money (which he was forced to take BTW even though JPM didn't need it) as quickly as possible. I'm sure the board figured this was the easiest way to raise capital without further diluting the current shareholders.

If they didn't need the money, then what happened to it They should have enough capital to pay it back now... because they really didn't do anything with it... or else they needed the money...

When I use my credit card, I don't 'need' the money because I have plenty to pay it back when it comes due...

 

[ladelfina]

Running_Man: v. good post. Dividends keep them honest. They cannot mess with it and keep paying out for long (unless they are under the TARP?).

 

[Bikerdude]

FDIC: Problem Banks Up 50% in Fourth Quarter

Regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.

We are creeping up to the 747 S&L's that went under in the late 80's and early 90's. I think the concern has more to do with size than the final total.

 

[Ed_The_Gypsy]

Running_Man,

I have recently become more interested in dividend investing. I only recently found the Dividend Growth Investor web site. Several ETFs were mentioned--PFM, SDY, PID, DVY and PEY. I then found Vanguard's VIG (9.15% financials & 9.03% energy) and did a little investigating. I like the components of VIG, but the yield is a little low (3.42%). PEY is 2/3 financials and I don't like that at all. PFM and SPY have similar performance. I like PFM's larger energy content (10.8% vs 1.3%) and lower financials content (17.9% vs. 22.4%) and their 10 largest holdings a lilttle more than SDY, but SDY has the methodology--the S&P High Yield Dividend Acheivers--and a better yield (6.27% vs. 3.57%). PID is International Dividend Acheivers, which are difficult for me to evaluate. It has a high financials content (34.6%), but good energy content (6.7%) and a nice yield (7.93%), although it is suspiciously high.

So, PFM, SDY, PID and VIG look interesting to me. I have my own ideas about energy stocks these days, so being light on energy does not bother me.

I am not quite ready to go the individual stock route beyond a couple of energy stocks and BRK-B (which may have been a poorly timed purchase). These ETFs look like a reasonable way to start out.

I would welcome your comments. It is clear that you know a lot more about dividend ETFs than I do.

Thanks,

Ed

 

[Gpond]

We are creeping up to the 747 S&L's that went under in the late 80's and early 90's. I think the concern has more to do with size than the final total.

S&L totaled $519B. We are all ready up to $354B. (As of Jan 21, 2009)

 

[harley]

Adjusted for inflation? That was 20 years ago.

 

[Bikerdude]

S&L totaled $519B. We are all ready up to $354B. (As of Jan 21, 2009)

I think that was my point.

 

[Running_Man]

Running_Man,

I have recently become more interested in dividend investing. I only recently found the Dividend Growth Investor web site. Several ETFs were mentioned--PFM, SDY, PID, DVY and PEY. I then found Vanguard's VIG (9.15% financials & 9.03% energy) and did a little investigating. I like the components of VIG, but the yield is a little low (3.42%). PEY is 2/3 financials and I don't like that at all. PFM and SPY have similar performance. I like PFM's larger energy content (10.8% vs 1.3%) and lower financials content (17.9% vs. 22.4%) and their 10 largest holdings a lilttle more than SDY, but SDY has the methodology--the S&P High Yield Dividend Acheivers--and a better yield (6.27% vs. 3.57%). PID is International Dividend Acheivers, which are difficult for me to evaluate. It has a high financials content (34.6%), but good energy content (6.7%) and a nice yield (7.93%), although it is suspiciously high.

So, PFM, SDY, PID and VIG look interesting to me. I have my own ideas about energy stocks these days, so being light on energy does not bother me.

I am not quite ready to go the individual stock route beyond a couple of energy stocks and BRK-B (which may have been a poorly timed purchase). These ETFs look like a reasonable way to start out.

I would welcome your comments. It is clear that you know a lot more about dividend ETFs than I do.

Thanks,

Ed

I began looking at the Dividend Achievers after reading a book on income investing, then when Nords switched it into 23 percent of his portfolio I looked further into what is actually done. There is nothing in the strategy to prevent overcommitment to one segment and eliminates stocks when dividends cut, way too late to my mind. PID from what I have seen is slightly better in that they want stocks that have raised dividends 5 years in a row but have many of the same issues and 38 percent financials are far too many for a dividend portfolio.

At that point I gave up looking at the dividend ETF's, although if there were one that took the Russell 3000 and only took the dividend payers in that index, I would look into the possibility of investing in that when the yield was high enough, I don't even know if something like that exists. I refocused my energy on individual dividend stocks again.

 

[ziggy29]

I'd agree. Dividend investing just doesn't work in an index because there's too much distressed junk in the index. I like indexing in general but not for dividend investing.

 

[Ed_The_Gypsy]

Thanks, R_M.

 

[Gpond]

I think that was my point.

Of course that does not count the $750B in TARPs and $45B injected into AIG.

The amount I quoted was just what FDIC had to dish out so far.

Total $1.15T is double of the Savings and Loan disaster and C and BAC (DOW stocks) are zombies.

 

[cashflo2u2]

we had this discussion a few times put i still dont see the merit in "dividend paying stocks" in the first place.

anything that gives me something and takes it away in the form of a price per share reduction isnt a benefit.

imagine the bank paying you interest then reducing your principal by the same amount. thats exactly what happens when a stock pays out its dividend, the next morning the price is automatically reduced by the payout amount.



want me to think of the dividend as as a bonus? dont take it back with the other hand reducing my stocks value by that amount... aaaah good trick!

I don't understand- how does the company have the power to reduce the market value of the stock to reflect the amount of the divvie?

 

[Bikerdude]

Of course that does not count the $750B in TARPs and $45B injected into AIG.

The amount I quoted was just what FDIC had to dish out so far.

Total $1.15T is double of the Savings and Loan disaster and C and BAC (DOW stocks) are zombies.

Well, at least the Government made money on the S&L disaster. The jury is still out on this one. If we get a robust recovery I would think even the Government could make money owning a bank.

 

[Gpond]

Well, at least the Government made money on the S&L disaster. The jury is still out on this one. If we get a robust recovery I would think even the Government could make money owning a bank.

We are on pace for the worst February in the history of the stock market.

I believe January 2009 was the second worst in history.

Somehow I think this period is worse then the S&L period.

 

[mathjak107]

I don't understand- how does the company have the power to reduce the market value of the stock to reflect the amount of the divvie?

the company dosnt do it, the stock exchanges automaically do it since just like when a mutual fund goes ex- dividend the money thats paid out reduces the companies worth by that same amount,

automatically all offers are reduced at the open the next day by the amount paid out effectively dropping the opening stock price by the very same amount along with the normal market action.

you can check out new york stock exchange rule 118 for the details of how it works

 

[cashflo2u2]

the company dosnt do it, the stock exchanges automaically do it since just like when a mutual fund goes ex- dividend the money thats paid out reduces the companies worth by that same amount,

automatically all offers are reduced at the open the next day by the amount paid out effectively dropping the opening stock price by the very same amount along with the normal market action.

you can check out new york stock exchange rule 118 for the details of how it works

I never knew that! I have seen the "adj." for dividends on yahoo finance stock price but thought that was some bookkeeping jigger they did. Anyway, wouldn't this reduction of the opening offers only hold true for a brief moment in time at the open and then market forces take over?

 

[daloanboy]

Hold on, hold on. Yes the stock price is adjusted for dividends but demand for dividend paying stocks is high hence the price goes up.

Look, if those who think share price is reduced by dividend value look at the following for a $100 stock paying a $4 annual divi. The divi is not dependent on share price but economic success.

Now, the dividend doomsters say the following should happen:

year 1 stock price 100 pays out $4
year 2 stock price $96 pays out $4
year 3 stock price $92 pays out $4
year 4 stock price $88 pays out $4
year 5 stock price $84 pays out $4
year 6 stock price $80 pays out $4
year 7 stock price $76 pays out $4
year 8 stock price $72 pays out $4
year 8 stock price $68 pays out $4
year 8 stock price $64 pays out $4
year 8 stock price $60 pays out $4
year 8 stock price $56 pays out $4
year 8 stock price $52 pays out $4
year 8 stock price $48 pays out $4 etc.....

Doh. Is that what happens to income stocks?

NO.

Banks have bombed cos of they're cr*p decisions.

Coke doesn't bomb quite as much because it makes less cr*p decisions.

The long term share price has diddly squat to do with dividend payments and everything to do with business acumen, and the value placed by shareholders on the stream of earnings that generates.

 

[mathjak107]

theres no reason dividend paying stocks have to go up... in fact they might cut the dividends so they dont go down more then the market action may drive them in a down market.

while there are many resons people may like dividend paying stocks they are no different than any mutual fund thats makes a distribution... because stocks used to be up 2/3 of the time and down only 1/3 it looked like the distribution was a non event also but we all know its not a non event....

no matter how you slice it when you give away millions of dollars in a companies assets it effects the share price....what market action may or may not do after that is a seperate issue...

if a stock dropped 6% in the market action for the year maybe it would only be down 1% if it didnt payout that 5% dividend that year.....


you cant say either way but the point was paying a dividend is a non event from a net asset value standpoint its not like getting interest from the bank where your principal stays the same and the payout is added to it