Nokia - Bad News for Dividend Investors

[MichaelB]

They are suspending the dividend. Nokia to Omit Dividend for First Time in 143 Years - Bloomberg

Quote:

Nokia Oyj (NOK1V) will omit a dividend for the first time in at least 143 years as the struggling Finnish mobile-phone maker retains cash for its comeback attempt.

[mathjak107]

this is why i am not a fan of iving off dividends directly. i know lots of retirees do but i am not a big fan of doing it.

143 years of history and poof ,gone.

i like my income stream to be relatively safe,secure and consistant.

i would re-invest all dividends letting them grow over time and not spend them short term but more important no matter what happens with the dividend my income stream continues on.

it is not such a good thing to have to sell shares at a loss or as usually happens when dividends are suspended or cut a big loss to make up the shortfall in income.

yeah we know about the white paper on the buffer zone strategy but call me old fashion. i like a cash buffer.

[foxfirev5]

That's why I broadly diversify with low cost mutual funds.

[Dawg52]

Quote:

Originally Posted by mathjak107 this is why i am not a fan of iving off dividends directly. i know lots of retirees do but i am not a big fan of doing it. 143 years of history and poof ,gone. i like my income stream to be relatively safe,secure and consistant. i would re-invest all dividends letting them grow over time and not spend them short term but more important no matter what happens with the dividend my income stream continues on. it is not such a good thing to have to sell shares at a loss or as usually happens when dividends are suspended or cut a big loss to make up the shortfall in income. yeah we know about the white paper on the buffer zone strategy but call me old fashion. i like a cash buffer.

Although not secure as with any stock, I would say 143 years has been relatively safe and consistent. But it is a reminder of the importance of diversification. I hold several dividend stocks and other income producing assets. If I owned Nokia, one missed dividend would not sink me. I wouldn't like it though.

[Zathras]

Quote:

Originally Posted by mathjak107 this is why i am not a fan of iving off dividends directly. i know lots of retirees do but i am not a big fan of doing it. 143 years of history and poof ,gone. i like my income stream to be relatively safe,secure and consistant. i would re-invest all dividends letting them grow over time and not spend them short term but more important no matter what happens with the dividend my income stream continues on. it is not such a good thing to have to sell shares at a loss or as usually happens when dividends are suspended or cut a big loss to make up the shortfall in income. yeah we know about the white paper on the buffer zone strategy but call me old fashion. i like a cash buffer.

You are joking, right?
You take one example, of a company that has been going downhill for five years, has had an unreliable dividend during that time (jumping up and down) and when they finally suspend their dividend, you say "this is why I am not a fan of living off dividends"??

When you invest, with any strategy, you at least need to invest intelligently. I would be willing to bet not one dividend investor in this forum was invested in Nokia.

Living off dividends is some of the most stable, reliable income I have had (and yes, that was through the latest recession).

Good choices and diversification lowers risk in any strategy. If someone is buying funds, they should research the funds. If they are investing in individual companies they should research them.
If either fails to do their research I would not be surprised if their investments end up performing poorly.

[haha]

Agree with Zathras above. Not many active investors would be unaware of Nokia's business challenges, and being aware of these they likely would not invest in Nokia as an income stock.

Dividends do not come from some magic piggy bank. They come from free cash flow, and if there is not adequate rising free cash flow one really needs to know why, and also what level of risk is being signalled.

Dividend investing has much to recommend it, but probably not to someone who wants to set and forget.

Ha

[Animorph]

The shareholders can always sell a few shares and make their own dividend...

[smjsl]

It's not that simple Zathras. When people raise concerns with a company, do you sell it right away? Stock tends to fall, and if you do sell, you lose much more than your last few dividend payments. So those relying on dividends end up asking themselves - do I lose the N number of dividends if I believe the bad news and reinvest into another dividend stock with less money or do I hold on to my stream of dividends?

Looking at NOK graph for last 5 years, I am sure it would not be easy for people to switch by selling on the bad news... and more importantly, it would not be for "free" as investors would still lose money in the process of such switch since stock price would have fallen by then.

How about Intel? Has enough bad news come out that it's time to dump that dividend stream? Is it clear that Intel will not recover, will not end up in Apple and other devices, that ultrabooks or some other Intel-inside product will never work, or that they won't come up with some new technology that will take over the world?

Doing homework is nice and good but in the end, you will still just be guessing whether a company's fortunes will turn around or not... and whether current bad news is just another blip on the radar.

I don't think it's often very clear when to take your losses because they will only get bigger.

Or put another way, if you could time stocks like that, you would not need to count money...

[FIREd]

Quote:

Originally Posted by smjsl It's not that simple Zathras. When people raise concerns with a company, do you sell it right away? Stock tends to fall, and if you do sell, you lose much more than your last few dividend payments. So those relying on dividends end up asking themselves - do I lose the N number of dividends if I believe the bad news and reinvest into another dividend stock with less money or do I hold on to my stream of dividends? Looking at NOK graph for last 5 years, I am sure it would not be easy for people to switch by selling on the bad news... and more importantly, it would not be for "free" as investors would still lose money in the process of such switch since stock price would have fallen by then. How about Intel? Has enough bad news come out that it's time to dump that dividend stream? Is it clear that Intel will not recover, will not end up in Apple and other devices, that ultrabooks or some other Intel-inside product will never work, or that they won't come up with some new technology that will take over the world? Doing homework is nice and good but in the end, you will still just be guessing whether a company's fortunes will turn around or not... and whether current bad news is just another blip on the radar. I don't think it's often very clear when to take your losses because they will only get bigger. Or put another way, if you could time stocks like that, you would not need to count money...

The same can be said for anyone who invests in the stock market, not just dividend investors.

[haha]

Quote:

Originally Posted by smjsl It's not that simple Zathras. When people raise concerns with a company, do you sell it right away? Stock tends to fall, and if you do sell, you lose much more than your last few dividend payments. So those relying on dividends end up asking themselves - do I lose the N number of dividends if I believe the bad news and reinvest into another dividend stock with less money or do I hold on to my stream of dividends?

Quote:

Originally Posted by smjsl Looking at NOK graph for last 5 years, I am sure it would not be easy for people to switch by selling on the bad news... and more importantly, it would not be for "free" as investors would still lose money in the process of such switch since stock price would have fallen by then. How about Intel? Has enough bad news come out that it's time to dump that dividend stream? Is it clear that Intel will not recover, will not end up in Apple and other devices, that ultrabooks or some other Intel-inside product will never work, or that they won't come up with some new technology that will take over the world? Doing homework is nice and good but in the end, you will still just be guessing whether a company's fortunes will turn around or not... and whether current bad news is just another blip on the radar. I don't think it's often very clear when to take your losses because they will only get bigger. Or put another way, if you could time stocks like that, you would not need to count money...

I can simplify it for you. Was Nokia essentially a one product company? Was Nokia a hardware supplier in a necessary market, but one that is subject to styles and rapid product obsolescence? Is this type of company a good bet for reliable dividends?

I am never sure why people who have no intention of following a dividend strategy enter these discussions anyway.

Ha

[NW-Bound]

No matter what type of eggs I have in my basket, I always watch them.

Even if I had many eggs and an assortment of them (meaning index investing), I would still be eyeing my neighbor's eggs (meaning international stocks), but that's just me. I am greedy, and just do not want to miss out.

Speaking of Nokia, I still remember how it was revered in 2000, when the first generation of digital phones hit the US market. Ericsson was also a premier phone maker. Apple and Samsung were not even in the market. And now, look who's on top. The tech market is very treacherous.

[mathjak107]

well 2008-2009 saw almost 1,000 companies cut or suspend dividends.

many folks don't keep a whole lot of cash and use their dividends with some cash to pay bills.

they had to sell either bonds or bond funds which were down or stocks which were down to make up that shortfall. only treasuries were up

if they had cash reserves to draw from then they really were not living directly off the dividends. they may not have been reinvesting them but they were actually using them to refill the cash bucket.

having enough cash to pay those bills is what is really safe ,secure and consistant, not the dividends.

[Zathras]

SMJ, you are correct, it isn't simple.
It takes some level of research.
However, NOKIA seems an extreme case and is certainly not typical.
It isn't just when the stock turns south, you have to take a good look at the foundation of the company and its product. The complete lack of an answer to the smart phone trend was a significant part of their woes.
This has been years in the making, and I am not sure when I would have sold my shares, if I had owned any.

Your post though just brings me back to the need to investigate any investment. Such investigation will lower the odds of taking a hit like this, but never completely eliminate it.
That brings us to the need to diversify, which is necessary in almost any good investment strategy.

Sure, it happens. I took a hit to my income stream from dividends in the past. It has never been very large, I had always had enough funds to cover the loss, and over 7 years, my dividend income stream has not only recovered, it is growing much faster than inflation.

Dividend investing is a relatively stable, lower risk, method of income generation as long as you do your research.

[smjsl]

Quote:

Originally Posted by haha I can simplify it for you. Was Nokia essentially a one product company? Was Nokia a hardware supplier in a necessary market, but one that is subject to styles and rapid product obsolescence? Is this type of company a good bet for reliable dividends? I am never sure why people who have no intention of following a dividend strategy enter these discussions anyway. Ha

First, you don't know my intentions or my history. You seem to jump to conclusions about people quite a bit.

Second, your point about bad sector (since everything in tech is subject to styles and rapid obsolescence) is invalid. What I said applies to all sectors. All companies have their risks. GM, BP, and large banks come to mind as other examples from other market sectors. Utilities will have their issues as well depending on law changes.

[mathjak107]

Quote:

Originally Posted by Zathras SMJ, you are correct, it isn't simple. It takes some level of research. However, NOKIA seems an extreme case and is certainly not typical. It isn't just when the stock turns south, you have to take a good look at the foundation of the company and its product. The complete lack of an answer to the smart phone trend was a significant part of their woes. This has been years in the making, and I am not sure when I would have sold my shares, if I had owned any. Your post though just brings me back to the need to investigate any investment. Such investigation will lower the odds of taking a hit like this, but never completely eliminate it. That brings us to the need to diversify, which is necessary in almost any good investment strategy. Sure, it happens. I took a hit to my income stream from dividends in the past. It has never been very large, I had always had enough funds to cover the loss, and over 7 years, my dividend income stream has not only recovered, it is growing much faster than inflation. Dividend investing is a relatively stable, lower risk, method of income generation as long as you do your research.

one could argue you can create a dividend yourself off any stock.

[haha]

Quote:

Originally Posted by smjsl You seem to jump to conclusions about people quite a bit.

Your opinion. Are you an individual stock dividend investor?

Ha

[Zathras]

Quote:

Originally Posted by mathjak107 well 2008-2009 saw almost 1,000 companies cut or suspend dividends.

How many didn't?

Quote:

Originally Posted by mathjak107 many folks don't keep a whole lot of cash and use their dividends with some cash to pay bills.

That seems more of an issue with not keeping a cash buffer than with dividends.
As I just noted, we dipped into our cash buffer a little bit when GE and the banks slashed or cut their dividends. Took about a 10% hit to our income. So we needed about 10% of our cash buffer. This recovered in about a year (other dividends continued increasing).

If someone has only stocks and funds, they also should have a cash buffer, wouldn't you agree? The cash is there specifically so you don't need to sell in a bear market. Doesn't matter if you are looking at stocks, dividends, etc.

Quote:

Originally Posted by mathjak107 if they had cash reserves to draw from then they really were not living directly off the dividends. they may not have been reinvesting them but they were actually using them to refill the cash bucket. having enough cash to pay those bills is what is really safe ,secure and consistant, not the dividends.

That is confusing, so you are critical of a dividend only investment strategy, but not of a dividend strategy combined with a cash bucket? I guess you and I agree then. I think in any investment strategy the investor should have a cash 'bucket' available for bear markets.
However, I guess you shouldn't call someone that is 100% stocks who sells stocks for living expenses, 'living off their stocks' since they really are converting that into cash first and then spending the cash?

[mathjak107]

In my opinion buying time is as important as buying assets.

Bad returns,poor sequences, and black swans are facts of life.

Instead of trying to rule them out a good plan allows for them.

To me a good plan can survive cut or suspended dividends with barely a blip.

Like various trickling brooks into a bucket i want my income stream buffered so it just flows.

Some folks count heavily on those dividend checks to pay bills. Many don't keep a bucket of cash but they keep a cup of cash.

When the other income sources stumble that income stream gets broken up .

They then have to find ways to make up the shortfall.

[Zathras]

I agree 100% with the words in your post, with one small exception.
You seem to be implying that many of the people that rely heavily on dividend income also have an adequate cash buffer.

I am curious where you gathered this from?

Again, I think a critical part of any investment strategy is to have enough of a cash cushion so you don't have to sell in a bear market. I see no reason though that investing in dividend stocks precludes one from doing so.

[FIREd]

Quote:

Originally Posted by Zathras Again, I think a critical part of any investment strategy is to have enough of a cash cushion so you don't have to sell in a bear market. I see no reason though that investing in dividend stocks precludes one from doing so.

I agree.