Up 30....Down 30

[mathjak107]

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. ..

 

[eta2020]

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.

 

[mathjak107]

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..

 

[Running_Man]

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.

 

[mathjak107]

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

 

[eta2020]

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.

 

[mathjak107]

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.

 

[Looking4Ward]

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.

 

[mathjak107]

yep, see my opinion on this above.

 

[eta2020]

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.

 

[mathjak107]

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.

 

[calmloki]

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...

 

[marko]

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.

 

[Running_Man]

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.

 

[Running_Man]

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.

 

[eta2020]

Running_Man you had explained it like a finance guy

Dividend growth is just a reflection of Earnings growth.

Earnings growth sooner or later leads to increased stock price.

 

[mathjak107]

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.

i disagree ,it is not the future earning out look that creates that drop in share price when the dividend is payed out. it is exchange rules that cause it regardless of earnings outlook, market perception ,greed and fear. all these things all play out in market action over the following quarter.

but the drop in share price from the payout has zero to do with all of the above .

it is no different than a mutual fund pay out. it is a wash! it is giving you money in the left pocket by taking it out of the right pocket.

the stock already reflects earnings and everything else when the dividend is payed out. heck if that wasn't the case we would all buy the day before a dividend is declared ,get it and sell profiting from the dividend.


finra 3220:

(1) In the case of a cash dividend or distribution, the price of the order shall be reduced by subtracting the dollar amount of the dividend or distribution from the price of the order and rounding the result to the next lower minimum quotation variation used in the primary market, provided that if there is more than one minimum quotation variation in the primary market, then the greater of the variations shall be used (e.g., if a market has minimum quotation variations of 1/16 or 1/32 of a dollar for securities trading in fractions, depending on the price of the security, or $.01 for securities trading in decimals, then the adjustment to open orders shall be in increments of 1/16 of a dollar for issues trading in fractions, and $.01 for issues trading in decimals);
(2) In the case of a stock dividend or split, the price of the order shall be reduced by rounding the dollar value of the stock dividend or split to the next higher minimum quotation variation used in the primary market as specified in paragraph (a)(1) and subtracting that amount from the price of the order; provided further, that the size of the order shall be increased by (A) multiplying the size of the original order by the numerator of the ratio of the dividend or split, (B) dividing the result by the denominator of the ratio of the dividend or split, and (C) rounding the result to the next lower round lot; and
(3) In the case of a dividend payable in either cash or securities at the option of the stockholder, the price of the order shall be reduced by the dollar value of the cash or securities, whichever is greater, according to the formulas in subparagraph (1) or (2), above; provided, that if the stockholder opts for securities, the size of the order shall be increased pursuant to the formula in subparagraph (2), above.

 

[Hamlet]

I tend to favor dividend paying companies because most of the companies I favor are strong but low-growth businesses. Take a company like Coke. Coke is a great business, but there really isn't much they can do to re-invest their earnings and get the same kind of returns on equity. They can either pay out dividends/buy back stock, or re-invest in a different business that is not likely to give them the same kinds of returns as their existing business.

The last thing I want is for management to take the earnings of a good business and re-invest them into a bad business, and there is a strong incentive for management to do this. Management generally gets paid better for running a bigger mediocre business than running a smaller great business.

It's different when you are investing in a smaller company with great growth prospects in a core business that is getting great returns on equity. Then you want them to retain earnings and grow the business.

It takes incredibly disiplined management to wisely invest profits from a great but low-growth business. There are companies out there like that (Berkshire comes to mind), but in general I'd rather have them stick to their existing business and cut me a check (or buy back stock if their valuation is reasonable).

 

[mathjak107]

i would never dispute the fact a company is what it is good or bad.. some companies go off on ventures that end up being di-worsification and hurting themselves.

but that really wasn't the discussion here.

my issue was only the fact some many think that the dividends are paying them to wait in downturns or helping their position and i dispute that logic.

any stock with similiar total returns can have a piece sold off and duplicate the dividend.

the mechanics are such the dividend payer would spin off a dividend and have a lower share price after , while the non payer would spin ioff a piece of the share and have a higher unreduced stock price. both are no better or worse than the other for the most part and both are now subject over the next quarter to market actions..

in theory while yes you are selling off shares in the non dividend payer the fact is by not having to first retrace from the reduction ,all things being equal in total return, less and less of a share has to be sold off as the price goes up to equal that dividend.

eventually the piece of share to duplicate the dividend is so small as to never run out of shares.

by the same token in theory a dividend payer that is in a downward trend and never recovers fully from each reduction after a pay out will in theory have lots of shares worth very little.

in either case it is the capital appreciation that brings up the share price so the income spin offs are recovered.

 

[heeyy_joe]

"my issue was only the fact some many think that the dividends are paying them to wait in downturns or helping their position and i dispute that logic." -mathjak107

Interesting viewpoint, guess I've been lucky to have had the illusion of accumulating so much wealth with a flawed strategy. You keep your theory and I'll reinvest those dividends anyways.

 

[mathjak107]

It is the discipline in either case. Things cannot turn out any different if total returns are the same. your strategy isn't flawed, just your interpretation of the math was.

some like myself will reinvest the dividends and pull income from a buffer. others prefer to pull dividends directly keeping less cash in the buffer.others use growth stocks and get no dividends. in either case the math is all going to be equal if returns are equal.

 

[Hamlet]

One difference is that the dividend doesn't fluctuate in value as erratically as the market price, and the dividend re-investment depends on the shareholder, not the management of the company.

Take 2008-2009. The dividend investor was receiving a portion of their earnings that they could re-invest at bargain prices. The companies themselves actually started hoarding cash rather than re-invest it at all.

Many, many, companies stopped their stock repurchase program during the downturn. They had just spent billions at much higher prices, but decided to stop the repurchase programs during the 50% off sale (Microsoft is the one in my portfolio that drove me nuts with this decision). Dividend investors still had the option to buy during the 50% off sale, because companies generally don't cut their dividend unless they absolutely have to.

It is the discipline in either case. Things cannot tern out any different if total returns are the same.

 

[mathjak107]

just think in terms of a fund dividend and reinvesting the distribution . you are no better or worse for it regardless of what kind of market it is done in . you are just even steven with what was except now you have more shares at a reduced price.

down the road when prices go back up you are no further head if the distribution happened and you reinvested the dividend vs the distribution never happening and the prices were never reduced on your origonal shares.


a dividend paying fund is nothing more than a collection of stocks and behaves the same way. in effect it is reinvesting the dividends it gets and holding those shares to be distributed all at once instead of as they come in. once paid out it takes the same reduction and is then subjrect to market action all over again.

if that distribution never happened the market action would just start from a higher share price..

by the way According to Fidelity, on average during the past two decades, 9 percent of stocks with the highest yields cut or suspended dividends within one year, and in 2009, during the great recession, that number reached 40 percent.

interest and dividends are two very different things.

From 1980 to 2005, S&P 500 dividend payers outperformed non-payers by more than 2.6 percentage points each year.however from 2005 to 2014 non dividend payers averaged 5-6% more each year than the s&p 500.

interesting shift.

 

[eta2020]

Why Dividends Matter

You can fake growth but you can't fake dividends.

 

[mathjak107]

a company can fake its health very well , kodak ,gm ,citi bank ,washington mutual ,jc penny ,barnes and noble ,etc all payed dividends right up until the end looking like they were far healthier then they were.

however companies that raise their dividend generally are doing so because they are in good financial health and you can take that fact to the bank.

no one can dispute that fact that companies with a history of raisings dividends is showing financial health.

but that does not change the myths of the math that people have about how the dividend works and what it does to the stocks price.

especially the math behind the myth of getting paid to wait.