Dividends disappearing so fast my head is spinning!

[cashflo2u2]

Based on the theory you put forth, the price of a stock paying a consistent dividend should eventually go to zero.

 

[mathjak107]

it certainly could but most companies cut the dividend after a certain amount of time of no growth as they need the cash and dont want the stock price diminishing even more

 

[Zathras]

What world do you live in?
Most companies certainly do not cut their dividends over time.
In a recession as serious as this one, sure, more than normal are.
And, if you chase the dividend yields you will see more cuts than if you look for good strong companies.
GE just cut theirs yesterday. Prior to that, they have been increasing their dividend for decades.
PEP, JNJ, PG, MCD, KMB have all long records of increasing dividends as well as growth.
Dividend payers tend to do better than non-dividend payers. This is not because they are paying dividends. This is because dividend payers tend to have some things in common.
The tend to:
Be mature, well run companies.
Most are larger companies.
Most have a dedication of some level of responsibility to share holders.

And yes, there are always exceptions. The financial sector is full of them.
Right now though, in a really horrible year for equities, my income stream from dividends is growing (although it is close to break even with GE's move).
I don't have to sell any equities to maintain that level and I am looking to take advantage of low prices to get grow the income stream even more.
I just don't see where you get 'most companies cut the dividend after a certain amount of time of no growth'. Most companies don't have no growth for very long unless you cherry pick the dates and pick a valley of a recession.

 

[mathjak107]

What world do you live in?
Most companies certainly do not cut their dividends over time.
In a recession as serious as this one, sure, more than normal are.
And, if you chase the dividend yields you will see more cuts than if you look for good strong companies.
GE just cut theirs yesterday. Prior to that, they have been increasing their dividend for decades.
PEP, JNJ, PG, MCD, KMB have all long records of increasing dividends as well as growth.
Dividend payers tend to do better than non-dividend payers. This is not because they are paying dividends. This is because dividend payers tend to have some things in common.
The tend to:
Be mature, well run companies.
Most are larger companies.
Most have a dedication of some level of responsibility to share holders.

And yes, there are always exceptions. The financial sector is full of them.
Right now though, in a really horrible year for equities, my income stream from dividends is growing (although it is close to break even with GE's move).
I don't have to sell any equities to maintain that level and I am looking to take advantage of low prices to get grow the income stream even more.
I just don't see where you get 'most companies cut the dividend after a certain amount of time of no growth'. Most companies don't have no growth for very long unless you cherry pick the dates and pick a valley of a recession.

the above applys to all decent companies... they show growth or they die over time...


dont loose track of the origonal premise. the origional statement was about the fact that exchange rule 118 says all stock offers must be reduced at the open by the amount being payed out making the dividend financially a non event, nothing gained nothing lost from the dividend itself. your worth is exactly the same before the dividend was paid out. .... forget about market action, investor sentiment etc thats a different issue that moves the stock up down,......


the question was could a stock go to zero paying out a dividend and yes the answer is without growth a company could give itsself away ... is that realistic a company would that? of course not

 

[ziggy29]

dont loose track of the origonal premise. the origional statement was about the fact that exchange rule 118 says all stock offers must be reduced at the open by the amount being payed out making the dividend financially a non event, nothing gained nothing lost from the dividend itself. your worth is exactly the same before the dividend was paid out. .... forget about market action, investor sentiment etc thats a different issue that moves the stock up down,......

Yes, but companies can die (or at least bankrupt and have shareholders wiped out) without ever paying a dividend at all. You could own a stock like this, get no dividends out of it for 30 years and watch it go bust. How is that preferable to getting a 4% dividend year after year (especially when it has a tendency to grow over time) for 30 years and then losing the equity? Wouldn't it be better to get that cash every quarter?

 

[mathjak107]

Yes, but companies can die (or at least bankrupt and have shareholders wiped out) without ever paying a dividend at all. You could own a stock like this, get no dividends out of it for 30 years and watch it go bust. How is that preferable to getting a 4% dividend year after year (especially when it has a tendency to grow over time) for 30 years and then losing the equity? Wouldn't it be better to get that cash every quarter?

Or take your own profits out every year of a non dividend paying stock thats growing...sell 4% a year or so or what ever you choose.... your missing the point, its the same deal.. only thing i may have is an extra 8 buck commission on the sale but non the less someone could do it......

 

[mathjak107]

i tend to think most people re-invest their dividends anyway so even the fact the stock may drop is a moot point as your just as into it as the non dividend paying stock.

in my opinion the bottom line is this: theres no disputing the mechanics of the dividend being a wash but the dividend is symbolic...

if you think back to the good ole dot coms we had tons of companies with rising share prices.. they had no real products , no real earnings but they sold at amazing prices.

dividend paying companies that raise their dividends only do so because they have real earnings and real money to do it.

investors being basically lazy , myself included would never want to spend hours reviewing a companies financials to see if they had real profits and real revenue and so it became easier to just find companies with histories of raising dividends .... much easier then studying financials.

so typically these stocks out perfornmed because of the demand and attention they got....

now with all the dividend cuts, smoke and mirrors and companies on life support i no longer think you can count on any of this being the case and soooooooooo its back to those company financials we go

 

[Dennis]

I play BONDS and their Divs..Not stocks..
Like he said>"anything that gives me something and takes it away in the form of a price per share reduction isnt a benefit." And to me it's a Ponzi Scheme...

Unless? Your Very good at selecting What Stocks to Buy and When to sell them..that is a differenet animal..GE and many other Co.s stock Owners are taking a bath on both ends now..getting very Poor Divs and loosing 50% vallue of their Stocks..

go play that game while your accumalating Wealth, but not into Retirment..

other play both and that can work out well too.. but I'm not good at that Stock and Div's game.. so, If I don't Understand it or ain't good at it? I pass..
GNMA's are paying about 4-5% Ylds and so are my other Bond Funds..and that's good enough for me.. I let my Bal. Funds handle the Growth of the Port..since they know alot more than me about it..and I'm both too old and to impatient Now to want to bother to learn..

Only for a short play was Treasuries last yr and for the Rtns... that paid off very well ( ave 17.5% btwn VFITX and VUSTX) but that's a once in a blue moon deal. Am back into GNMA, Corp. and FFRHX. for now.

Keeping Fingers Crossed!

last yr: My Port was 50% in 3 bonds did 17.5% & 50 % in 3 Bal. Funds ave -15% and a 9.2% apy for the past 10 yrs..If it ain't broke? Don't fix it..LOL

 

[Dennis]

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

Re: sorry freind but you fail to mention This was how long ago? 25 yrs ago? Infaltion alone? Is equal to about $600 Billion back thenand As I recall We also Made a Major Profit on that deal too! Of course GM and the others having to pay 8-9% Interest on these Loans and us owning it's stocks now? We should recap and come out even vs the Loosers we buy out..., if not ahead of the deal.. It's really All the 9,000 Earmarks that is the Problem.. and us Bailing out So many near Bankrupt States that broke it's own laws in not balancing their budgets every yr prior....that I think is the real problem..and who's going to Bail them out again, Next Yr? LOL

 

[mathjak107]

I play BONDS and their Divs..Not stocks..
Like he said>"anything that gives me something and takes it away in the form of a price per share reduction isnt a benefit." And to me it's a Ponzi Scheme...

Unless? Your Very good at selecting What Stocks to Buy and When to sell them..that is a differenet animal..GE and many other Co.s stock Owners are taking a bath on both ends now..getting very Poor Divs and loosing 50% vallue of their Stocks..

go play that game while your accumalating Wealth, but not into Retirment..

other play both and that can work out well too.. but I'm not good at that Stock and Div's game.. so, If I don't Understand it or ain't good at it? I pass..
GNMA's are paying about 4-5% Ylds and so are my other Bond Funds..and that's good enough for me.. I let my Bal. Funds handle the Growth of the Port..since they know alot more than me about it..and I'm both too old and to impatient Now to want to bother to learn..

Only for a short play was Treasuries last yr and for the Rtns... that paid off very well ( ave 17.5% btwn VFITX and VUSTX) but that's a once in a blue moon deal. Am back into GNMA, Corp. and FFRHX. for now.

Keeping Fingers Crossed!

last yr: My Port was 50% in 3 bonds did 17.5% & 50 % in 3 Bal. Funds ave -15% and a 9.2% apy for the past 10 yrs..If it ain't broke? Don't fix it..LOL

ffrhx was a real killer 2 years ago... that and ultra short bond fund were looked at like money markets on steriods and then the bottom fell out and investors couldnt believe how much it dropped ....

i recently bought it too as it looks like the smoke cleared....

i use tlt long term treasury bond fund alot for portfolio protection, that thing soars on those days we drop....

also like fidelity high income....

im not smart enough to pick individual stocks other then for speculation.. i can not pick just the right company in just the right industry in just the right time in just the right market...

even if i got everything above correct i still no nothing about what the competitors are doing... my preference is all funds

tried the dividend thing a while ago with dogs of the dow and at that time highly rated dvy..... didnt do well at all and so back to my fidelity insight newsletter and permanent portfolio for now

 

[mathjak107]

its not that dividends are a ponzi scheme... its just there is no difference in the mechanics of it whether your non dividend paying stocks rose 4% and you sold off 4% on your own or whether they sell 4% of the value of the company on your behalf and give it to you... its no different then a mutual fund distribution.

the mechanics of paying that dividend are not a bonus, an extra kicker or anything else thats giving you anything extra they are merely symbolic ..


its all about total return ,,,,PERIOD no matter how you get it

 

[Hal3]

If dividends are obsolete - so is "investing".

I thought the whole theory of owning stock was basically: "I have a great idea for a profitable business. I don't have the money to create it but if everyone will put money into the business I will split the profits pro rata."

So why should I invest in your company again?

Because the shares will increase in value?

Only until we run out of bigger fools.

We are getting close!

 

[Hal3]

Dividends - or not.

its just there is no difference in the mechanics of it whether your non dividend paying stocks rose 4% and you sold off 4% on your own or whether they sell 4% of the value of the company on your behalf and give it to you.

I disagree.

Dividends paid from operating profits are a distribution of real income.

If a stock goes up 4% because Cramer says it is great and you sell 4% that is not a distribution of real income.

In the short run it doesn't matter which is which - that is true - but in the long run it really does. Price changes in a stock due to supply and demand for the paper stock certificates (don't get me started on that) are not the same as price changes due to the supply and demand for the companies products and the underlying profit.

 

[mathjak107]

hal re-read what i posted,.... thats what i said,.... the dot coms went up in price on pure specualation.. alot had no earnings or even a product....


thats has nothing to do with the mechanics of the dividend for the payout, forget about the financial shape of the companies assume they are both good . the mechanics stays the same whether the company sells 4% off and gives to to you or you sell 4% off yourself of a growing non dividend paying company.


forget about the merits of dividend paying stocks thats not what im referring to... dividend paying stocks tend to do better because of the symbolic gesture of the dividend .... it says im a healthy growing profitable company and i have cash to spare........

at least it used to say that.... all the mechanics refer to is that the actual paying of a dividend from a total return stand point is a non event... the dividend made you not 1 penny richer by itself; thats all im saying

 

[MichaelB]

all the mechanics refer to is that the actual paying of a dividend from a total return stand point is a non event... the dividend made you not 1 penny richer by itself; thats all im saying

If your point is that the value of your investment is the same after that one transaction, technically you are correct. However, you can not conclude anything about investing from analyzing one transaction at one instance.

Over a period of time, however, there is a considerable difference between receiving a regular dividend payment or not.

the mechanics of paying that dividend are not a bonus, an extra kicker or anything else thats giving you anything extra they are merely symbolic ..

There is nothing symbolic about receiving a dividend payment. Retained earnings are reinvested at management discretion and in line with management objectives while paid dividends are reinvested at investor discretion and in line with portfolio objectives. From this perspective a dividend is much more valuable to the investor. As a kind of forces rebalancing it also allows for a significant reduction in portfolio risk.

 

[mathjak107]

no less risk if you re-invest the dividends like most do

 

[mathjak107]

If your point is that the value of your investment is the same after that one transaction, technically you are correct. However, you can not conclude anything about investing from analyzing one transaction at one instance.

Over a period of time, however, there is a considerable difference between receiving a regular dividend payment or not.

There is nothing symbolic about receiving a dividend payment. Retained earnings are reinvested at management discretion and in line with management objectives while paid dividends are reinvested at investor discretion and in line with portfolio objectives. From this perspective a dividend is much more valuable to the investor. As a kind of forces rebalancing it also allows for a significant reduction in portfolio risk.

michael you can have a million transactions the fact is you cant dispute how a dividend works.. its a payment offeset by a drop in share price by the same amount... thats all it is.....

you want to debate the merits of a dividend paying stock over a non paying stock thats a different discussion then the above

 

[haha]

michael you can have a million transactions the fact is you cant dispute how a dividend works.. its a payment offeset by a drop in share price by the same amount... thats all it is.....

Mathjak, this argument of yours is a powerful example of the theory tail wagging the empirical dog. You really don't know what you are talking about, and reams of data prove it. Just becaseu the exchanges adjust limit orders, and adjust the day's gain or loss on an ex-div day says nothing even remotely as far reaching as your rather cranky thesis.

Ha

 

[ziggy29]

michael you can have a million transactions the fact is you cant dispute how a dividend works.. its a payment offeset by a drop in share price by the same amount... thats all it is.....

That's precisely what it is with mutual funds that pay out dividends, but not strictly what a stock does. Yes, it has a tendency to open lower by fairly close to the amount of the dividend, plus or minus whatever amount the stock would have otherwise changed in value at the open. But it's not as formulaic as you describe.

Sometimes there are people waiting for a dividend to be paid out before buying in a taxable account so as to avoid "buying the dividend" and immediately getting some of their purchase price back as taxable income. These people could produce some added demand to buy.

 

[mathjak107]

im not following your statement.... i think we got side tracked here and lost focus.... the comment was made that such and such a stock was paying a 5% dividend so even though it got pummelled it paid to wait it out.... my answer was the 5% dividend is a non event, just like a fund distribution you gained nothing in total return..... thats it , thats all i said... where the markets take it after that distribution god only knows but thats a seperate issue .. of course the question is now that most stocks are down down down and havent been recovering from those payouts how much less would they be down if they didnt pay a dividend all those years but then again maybe they wouldnt have attracted as many investors either so its impossible to really tell or maybe just had a higher share price and fell the same percentage anyway.... beats me.... all i know is im tired of seeing red every day...

after that comment about the dividend being a total return wash everyone is talking about the benefits of dividend paying stocks .... im not disputing that, theres tons of studies that show investors like the idea of seeing that a company has money to give them, even if the investor plows it right back in as a re-investment ...

i think this got dragged off course somewhere

 

[MichaelB]

you want to debate the merits of a dividend paying stock over a non paying stock thats a different discussion then the above

Absolutely not. The stock prices is determined by open market bidding, period. Dividend payments may or not be reflected in stock prices.

I think you may have confused stocks with mutual funds.

my answer was the 5% dividend is a non event, just like a fund distribution you gained nothing in total return..... thats it , thats all i said...

For a mutual fund there is no difference in value after the distribution. When a stock pays a distribution there is a great difference. You have the distribution cash in hand and the marketplace determines the price of the stock, which may or not reflect the distribution.

 

[mathjak107]

Absolutely not. The stock prices is determined by open market bidding, period. Dividend payments may or not be reflected in stock prices.

I think you may have confused stocks with mutual funds.

For a mutual fund there is no difference in value after the distribution. When a stock pays a distribution there is a great difference. You have the distribution cash in hand and the marketplace determines the price of the stock, which may or not reflect the distribution.

read nyse rule 118 and then you will understand how it works,,,its no different .... where market bidding takes it after the reduction is up to the markets..

if the stock closes flat then your down the amount of the payout,,,simple concept.....

 

[ziggy29]

I believe this sums up this thread at this point:

 

[mathjak107]

ziggy i loooove that icon ha ha ha... wish we could find a bigger one

 

[DblDoc]

Can we go off topic for a moment and discuss which is better: buy and hold low cost index funds or active management?

FWIW mathjak I'm in your "camp". Total return is all that matters... I think Vanguard has several white papers that discuss it.

DD