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Old 10-09-2014, 11:16 PM   #21
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Does this mean the sky is falling and we should have sold a week ago or so!

Perhaps it is better viewed as sale time and time to load up on discounted funds.
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Old 10-10-2014, 06:18 AM   #22
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I'll reinvest those dividends at lower prices..thank you!
great , but total return is still identical. more shares at lower prices is not a bargain when they reduce the share price at the same time by the same amount...

each payment you get and reinvest is just the company breaking a piece of your share price off , reducing the price of your share by that amount and then you put it back in.

all in all total return stays the same.

it is really no different than reinvesting the dividend payment of a mutual fund which is just a collection of stocks . nothing gained ,nothing lost from the payment itself..

the mechanics of a dividend are one of the least understood areas in investing because folks equate it to interest .

interest once it is paid is on top of your previous balance. a dividend is paid and the share price is reduced by the amount paid leaving you no better or worse than before it was paid.

after a dividend is payed the next quarter is spent trying to retrace what was paid out or more and then the process starts over again.

a total return of 6% made up of 2% dividends reinvested and 4% appreciation is identical to a non dividend payer that had 6% from appreciation only and no reinvested dividends.

dividends just make it easier because each quarter you get a check in the mail box as opposed to generating the same payment on our own from our portfolio but given the same return on the same dollars the process is identical.

if the dividends are qualified they may have a tax advantage if you are selling off pieces of your portfolio but other than that nothing gained or lost from reinvested dividends.

one other point about dividends that the folks at s&p are discovering..

compounding on investor money is the key to growing money.

a penny doubled and compounded every day for only 31 days is over 10 million bucks . such is the power of compounding.

what is interesting is dividends have increased to the highest levels since 1998 with a record increase of 17.8 billion dollars in increased dividends payed out just 1st quarter. the 2nd quarter was even bigger.

all dow stocks pay dividends and 84% of the s&p 500 does too.

but according to a study done by howard silverblatt at s&p those dividends have been coming at a price as they go up and up..

a good part of that capital from free cash flow is gone forever and no longer available for compounding.

mid-caps and small caps who pay little in dividends have been far and away providing far better compounding and use of investor money for much greater returns..

in fact one of the least efficient ways to grow investor money now is paying it out as a dividend.

as chuck akre said ,free cash flow in a company can be used to compound by buying back its own stock, investing in its own company or buying other companies . cash flow paid out as dividends loses its compounding ability and much of it is gone forever and can no longer compound.

many of the great companies in the s&p 500 have lagged behind their non dividend payers in the midcap and small cap markets who now seem to be much more efficient at generating compounding on investor money.

midcaps and small caps have compounded the last 5 years at rate of 5-6% higher then their dividend paying cousins.

time will tell if the big ole dividend payers are still providing much compounding of investor money as they did in their more nimble days but in either case it all boils down to total return and the same total return will always yield the same return no matter how it is arrived at ,whether reinvesting dividends or straight appreciation...
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Old 10-10-2014, 08:40 AM   #23
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dividends just make it easier because each quarter you get a check in the mail box as opposed to generating the same payment on our own from our portfolio but given the same return on the same dollars the process is identical.
They also make it easier to identify great companies. I like dividends charts that look like stairways going up and up IE: CL, KO, PEP, PG.

Great companies GROW dividends and that means after X years of holding great company you are getting 5% or 10% dividend on your initial investment.
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Old 10-10-2014, 08:44 AM   #24
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there are great companies on boths sides of the fence .

the only thing a a rising dividend really says is look at me , i am so healthy i have money we don't even need.

of course the flip side is as a group the dividend payers have not grown investors capital the way the none payers have as rising dividends to new levels have been taking more and more capital out of the company..

basically any company that hands back money to us today and says here maybe you can invest it better than i can really leaves me in a lurch. if you can't compound this money and you are the "great company" what chance do i have and if i have to invest it elsewhere why do i need you?,

at one time these great companies were just that , but the last decade they have been the old wrinkled prom queens of years ago.

don't get me wrong , i still want these companies in my mix for stability and volatility reasons but the dividends are not really a factor. i look at my total return on my portfolio no matter how it is achieved. some times i own more dividend heavy funds and sometimes less but it is only to adjust better to the big picture. .
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Old 10-10-2014, 08:53 AM   #25
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Companies that don't/can't grow dividends have a tendency to squander money.

This may not be the case for Small Caps though.

Bottom line is Dividend Growth is sign of strength/health and on a long run is profitable for patient investors.

And we are talking about income that is tax free on federal level at up to 90k.
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Old 10-10-2014, 08:56 AM   #26
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that is more a myth than reallity today about the money squandering. some of the spending that goes on with these big old guard stocks is disgusting . . it really is company specific on both sides..

many companies have made more money buying back their own stock then the products they sell. givng that money to shareholders would have done far more good buying back stock or having aquisitions most of the time.

but again i like those old companies for volatility reasons , but like i said the same total return is the same total return and reinvesting dividends is not a plus or a minus when compared to straight appreciation. ..
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Old 10-10-2014, 09:09 AM   #27
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that is more a myth than reallity today about the money squandering. some of the spending that goes on with these big old guard stocks is disgusting . . it really is company specific.

many companies have made more money buying back their own stock then the products they sell. givung that money to shareholders would have done far more good buying back stock or having aquisitions.
Bybacks are very often done to reduce number of shares and increase dividend.
PM, MO are recent examples of it.

And yes you are right even KO had stock option plan that would steal money from shareholders. You can find examples of mismanagement in all companies.

But great business will do well and great business most likely will (NOT always) grows dividend payment year after year at rate faster than inflation.
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Old 10-10-2014, 09:12 AM   #28
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exactly , great companies are great companies regardless.

but i think we are drifting to far off of what the point was which was that reinvesting dividends is nether a plus or a minus if things fall.

they mean no more or less than a fund distribution and reinvesting the payment back in . it is simply a wash at any price level..
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Old 10-10-2014, 09:17 AM   #29
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there are great companies on boths sides of the fence .

the only thing a a rising dividend really says is look at me , i am so healthy i have money we don't even need.

of course the flip side is as a group the dividend payers have not grown investors capital the way the none payers have as rising dividends to new levels have been taking more and more capital out of the company..

basically any company that hands back money to us today and says here maybe you can invest it better than i can really leaves me in a lurch. if you can't compound this money and you are the "great company" what chance do i have and if i have to invest it elsewhere why do i need you?,

at one time these great companies were just that , but the last decade they have been the old wrinkled prom queens of years ago.

.
This is simply not true, I suggest you look at the total return of dividend stocks over the last 5 years that consistently prove they can raise the dividend every year such as MO, KMP, NKE, MMM, BDX, YUM(even with all the bad press in China), ABT, VFC, MMP, I could go on but one of the very best indicators for a future successful stock is a company with a solid dividend policy that includes raising that dividend every year in a reasoned approach.
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Old 10-10-2014, 09:21 AM   #30
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if you want to pull individual cases the case can be backed up with examples on both sides.

but there are indexes full of few dividend payers that have beat the s&p 500 by 5 to 6% every year the last 5. and your point?

even the last 15 years those staunchy old dividend payers in the dow and s&p 500 lagged
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Old 10-10-2014, 09:22 AM   #31
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exactly , great companies are great companies regardless.

but i think we are drifting to far off of what the point was which was that reinvesting dividends is nether a plus or a minus if things fall.

they mean no more or less than a fund distribution and reinvesting the payment back in . it is simply a wash at any price level..
I agree. It makes almost no difference since it is only 2%-2.5% of portfolio value for equities only investor type.

It is better to have dry powder pile of cash which one can inject into market during downfall.
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Old 10-10-2014, 09:28 AM   #32
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perhaps but the question is what is down. i am not a big believer in buy low sell high as that mantra has lost more money for folks than any other mantra.

trying to buy low usually ends up trying to catch a falling knife. many buy low and sell lower.

we all thought being down 2000 points in 2008-2009 was low. well things fell another 4000 points tripping stop losses and panicking folks out of the markets licking their wounds.

buy high sell higher has made far more money as the trend is your friend. the odds of being the last guy on the last day of a bull market are slim.

the odds of buying something on the trip down and instantly being lower is far greater.

there is another problem too trying to know when to put that powder in.

to have dry powder you need to get out early during a run up or very early on in a downturn ,or just not invest free cash , so in a bull market that takes a real nervous nellie type of person who can leave the party and leave what is believed money on the table still..

not reinvesting dividends is taking that money out of play and off the table as well.

to buy when we are headed to hell in a hand basket takes a seasoned investor with nervous of steel. rarely do the same folks have both qualities and so the i will have dry powder to reinvest money later never seems to work well.

either you get screwed up getting out or screwed up getting in because of these human traits that are opposite.
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Old 10-10-2014, 09:37 AM   #33
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LOL! To think that just one month ago I was concerned because I was rolling over my 401(k) to an IRA at Vanguard and thought I was missing out on any gains while my money was in play.

Oh well. Only proves to me that trying to time the market is futile. Even today, I'm resisting the urge to follow thru on "What should I sell and what should I buy?"

I'm just going to hold still.
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Old 10-10-2014, 09:39 AM   #34
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yep, see my opinion on this above.
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Old 10-10-2014, 09:40 AM   #35
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I don't know when to buy. Then if you are buy and hold and enjoy dividend yield it does not matter that much.

But I know that I will be adding to VIG and SCHD because those 2 indexes are full of PM, MO, KO, PEP, PG, PG and similar wide moat dividend growers.
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Old 10-10-2014, 09:44 AM   #36
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again ,the dividend yield means nothing , no difference if they give you a piece of your share price back and reduce your remaining price or you sell a piece of a share and maintain the higher share price on the balance.

it is a zero sum game either way..perhaps you are not aware the laws require your remaining shares to be reduced in price by the amount of the dividend and that is why you don't understand why getting that dividend is just a wash vs not getting it. .

once the dividend is payed future appreciation is required to retrace back to where it was.

there is zero difference between getting 2% in a dividend and 4% in appreciation vs no dividend and just getting the full 6% appreciation with no retrace of a payout needed.

just create your own dividend just like retirees do with a portfolio when they withdraw if no dividend exists, it is the same results..

there is no difference in a down market putting a dividend in the left pocket and having the share price fall by the same amount in the right pocket.

this is an important concept to understand ,especially when stocks are falling.
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Old 10-10-2014, 10:00 AM   #37
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We are mostly in rental real estate, but did have some bucks in the market. I ramrodded the home decision to sell all stocks in late 2012. Held the cash in Vanguard money market through 2013, earning $12 or so and avoiding that 30% market gain. This year we added $100k to the money market and have been buying back into stock funds in a measured way once/week. Been shooting for 1/3 foreign, 2/3 domestic. With the current oopsie-daisey we've still made more than we made in 2013.

Down to $30 in the money market as of Tuesday and a bunch of property taxes due in November; as well as a new loan to fund next week, but I hope to have the stones to continue buying in the market, because one; I am getting concerned about my ability to generate cash through my own efforts, and two; buying now seems dumb to me and I have such a good track record in the market...
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Old 10-10-2014, 10:02 AM   #38
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it is a zero sum game either way..perhaps you are not aware the laws require your remaining shares to be reduced in price by the amount of the dividend and that is why you don't understand why getting that dividend is just a wash vs not getting it. .

.
I understand your premise, but a quick look at several dividend equities, mutual funds and bond funds that pay a nice dividend but have also appreciated in price over the years.

In the short term (that month) they may have to adjust their price to 'net zero' but over the longer term, help me see how this is so.
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Old 10-10-2014, 10:09 AM   #39
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again ,the dividend yield means nothing , no difference if they give you a piece of your share price back and reduce your remaining price or you sell a piece of a share and maintain the higher share price on the balance.

it is a zero sum game either way..perhaps you are not aware the laws require your remaining shares to be reduced in price by the amount of the dividend and that is why you don't understand why getting that dividend is just a wash vs not getting it. .

once the dividend is payed future appreciation is required to retrace back to where it was.

there is zero difference between getting 2% in a dividend and 4% in appreciation vs no dividend and just getting the full6% appreciation with no retrace of a payout needed.

just create your own dividend just like retirees do with a portfolio if none exists, it is the same results..
You are confusing earnings, dividend payments and Net Present Value and valuation of net present value. Of course a stock that issues a dividend has the stock fall by that exact price, since it happens today the net present value reduction is fully reflected in price. But it is not today's dividend that is affecting the stock price of dividend stocks it is the higher probability of future dividend payments and return to shareholder that provides a better floor for dividend stocks.

Ideally the overall stock price is the NPV of future earnings and dividend payments discounted by prevailing interest rates and the confidence in the future earnings. A company with a history of dividend payments will have a firmer base in market turmoil and subsequently that portion can be valued with more certainty. As the dividend rises over time the certainty of the NPV also rises and is not affected by market rumors and provides a higher base for the shareholder.

If a company is unable to achieve expected growth then the NPV falls, but whether a stock pays a dividend or not has absolutely no correlation to determine the future growth prospects of a company. Growth has far more to do with management, the market they are in and the effective use of available their available capital. Capital can be obtained through retained earnings, effective use of debt and issuing additional shares. To deem dividends as keeping a company from growing is not a reasonable idea in my opinion, but there are companies that pay out too much of their earnings in dividends and don't grow because of that just as there are companies that pay no dividend and don't grow because management makes bad investment decisions with their available capital. Again this is a management issue not a capital issue.
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Old 10-10-2014, 10:30 AM   #40
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exactly , great companies are great companies regardless.

but i think we are drifting to far off of what the point was which was that reinvesting dividends is nether a plus or a minus if things fall.

they mean no more or less than a fund distribution and reinvesting the payment back in . it is simply a wash at any price level..
An individual that buys additional shares with his dividend is increasing his share in the company. Think for a moment if interests rose one year from zero to five percent and then rates are back to zero, temporarily sending the non dividend paying stock down 30 percent and the dividend paying stock 20%. The stock prices of both companies started at $50.00 One company pays 25% of their earnings in dividends say $1.00 for a 2% yield at the start but 2.5% for this falling year and the other reinvests all dividends. Assume both are growing reinvested earnings at 10% then in a year the non dividend company will have invested $4.00 into the company and the dividend paying stock will have invested $3.00.

Now our shareholder will now own an additional 2.5% shares. The stock prices since all other valuation expectations have returned are $54 for the non dividend paying stock and $53 for the dividend paying stock. however our investor now has 1.025 as many shares ($53*1.02) = $54.32 and is 32 cents ahead of the non dividend paying stock.
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