Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
What happens to dividends/prices?
Old 02-03-2023, 12:21 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2019
Location: Anytown
Posts: 1,052
What happens to dividends/prices?

Now that we can get nearly 5% yield on Treasury Bills, what will that do to dividend yields? Any self-respecting dividend stock will need to pay up to compete with risk-free Teasuries. Will the yield go up by price falling or by dividends going up?

I think I know the answer. But I have not seen any actually significant reaction.

I've built a nice divident income portfolio in an IRA but I admit I'm very tempted to sell it all and buy T-bills for a year or so.

Maybe this belongs in teh active investing thread.
SecondAttempt is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-03-2023, 03:45 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Mar 2012
Posts: 3,437
Dividend yield is not a fixed number set in stone. There are a number of factors a company considers in setting its dividend rate, and similarly a number of factors which the market considers in pricing the shares being discussed.

In general company will set its dividend rate based on profitability and outlook. Market will drive share price based on dividend yield based on risk free yield and outlook.

Bottom line, there are no guarantees as to how dividend rate/yield will adjust for any particular company or share issue...it depends.
njhowie is offline   Reply With Quote
Old 02-03-2023, 05:00 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 33,553
I think a fixation on dividend yield is foolish. There are lots of good low or no dividend stocks out there to choose from. By comparison to high dividend stocks their "dividends" are just implicitly included in the stock price and the investor can control their dividends by simply selling a couple shares here and there.

There is an argument to be made that companies pay dividends at least in part because they can't find enough investment opportunities that will yield more than their cost of capital so that is a bad sign by comparison to no or low dividend payers.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 02-03-2023, 05:02 AM   #4
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 4,156
Dividends do not move to reflect interest rates. They are the decision of each individual company. The price of a dividend stock may react to rates, though.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 02-03-2023, 05:05 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Location: Crownsville
Posts: 3,150
A dividend yield that looks too good to be true, often is. Sometimes it's simply a result of the stock price dropping quickly, which automatically pushes up the dividend yield. It might look good at a quick glance, but often it's a sign the company is having problems, and just might reduce that dividend in the future, or cut it out entirely.
Andre1969 is online now   Reply With Quote
Old 02-03-2023, 05:08 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 7,471
Quote:
Originally Posted by njhowie View Post
Dividend yield is not a fixed number set in stone. There are a number of factors a company considers in setting its dividend rate, and similarly a number of factors which the market considers in pricing the shares being discussed.

In general company will set its dividend rate based on profitability and outlook. Market will drive share price based on dividend yield based on risk free yield and outlook.

Bottom line, there are no guarantees as to how dividend rate/yield will adjust for any particular company or share issue...it depends.
+1. Dividends are not set as a competitive item but rather how much comfort the company has in paying its owners, need for extra cash and other internal factors. No CEO decides to increase the dividend based on external factors.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 02-04-2023, 10:36 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Aug 2019
Location: Anytown
Posts: 1,052
Quote:
Originally Posted by njhowie View Post
Dividend yield is not a fixed number set in stone. There are a number of factors a company considers in setting its dividend rate, and similarly a number of factors which the market considers in pricing the shares being discussed.

In general company will set its dividend rate based on profitability and outlook. Market will drive share price based on dividend yield based on risk free yield and outlook.

Bottom line, there are no guarantees as to how dividend rate/yield will adjust for any particular company or share issue...it depends.
Yes, I understand that. I think I should mention that I focus on companies with a long track record of increasing (or at least never cutting) the dividend. I understand this is no guarantee that it will be maintained in the future but it does place a reputational cost on the current Board members.

I get that there is no free lunch and stock prices will likely adjust to keep the dividend rate consistent with interest rates. But so far I have not seen it happening and that is surprising to me.
SecondAttempt is offline   Reply With Quote
Old 02-04-2023, 10:51 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Aug 2019
Location: Anytown
Posts: 1,052
Quote:
Originally Posted by marko View Post
No CEO decides to increase the dividend based on external factors.
Dividend decisions are generally not made by the CEO. They are made by the Board of Directors who have to stand for re-election by the shareholders every few years. While I have no evidence that cutting the dividend would impact their re-election, I suspect it at least enters their mind when making the decision to cut the dividend.

And I think dividend decisions are entirely based on external factors! If a company can effectively redeploy cash to grow rapidly, that's what they do. If the external factors limit growth and stockholders demand payment when they no longer get it from the stock price going up, that's also an external factor. Perhaps they are not made based on macroeconomic factors.

Still, my intention is not to debate. It is to understand why I am not seeing the behavior I would expect.
SecondAttempt is offline   Reply With Quote
Old 02-04-2023, 10:51 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 15,138
Quote:
Originally Posted by SecondAttempt View Post
....

I get that there is no free lunch and stock prices will likely adjust to keep the dividend rate consistent with interest rates. But so far I have not seen it happening and that is surprising to me.
No, the dividend rate is not controlled by interest rates, companies don't care what the interest rate of the Fed is, when they are setting their dividend rate as it has nothing to do with it.

Did you see all companies drop their dividends to 0% when the Fed went to 0% .. I didn't. So why expect the reverse ?
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 02-05-2023, 05:30 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 33,553
+1 changes in interest rates don't directly impact dividend rates...IOW, a Board doesn't include changes in interest rates in making dividend decisions.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 02-05-2023, 05:37 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 7,471
Quote:
Originally Posted by SecondAttempt View Post
Dividend decisions are generally not made by the CEO. They are made by the Board of Directors who have to stand for re-election by the shareholders every few years. .
You're right. I was thinking of my old company where the board always deferred to the CEO.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 02-05-2023, 01:16 PM   #12
Recycles dryer sheets
 
Join Date: Jan 2022
Posts: 277
Quote:
Originally Posted by marko View Post
You're right. I was thinking of my old company where the board always deferred to the CEO.

Most boards defer to their CEOs. The board does set the dividend, but typically based on the managementís recommendation.
Phroig is offline   Reply With Quote
Old 02-05-2023, 03:10 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 33,553
That and companies try to be sure and steady with dividend policy and avoid abrupt changes so in many cases the starting point is the same as last year and then consider changes based on recent experience.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Confused about dividends/ex-dividend stock prices lhamo FIRE and Money 23 12-30-2012 03:21 PM
What happens if lifetime annuity issuer goes bankrupt? mark FIRE and Money 82 06-06-2012 05:00 PM
What happens if the unthinkable happens? newporttony FIRE and Money 79 03-09-2009 08:31 AM
What happens to the stock when one company takes over another? Andre1969 FIRE and Money 4 05-09-2006 06:09 PM
TIPS - What happens if you need to sell them modhatter FIRE and Money 3 09-16-2005 05:36 PM

» Quick Links

 
All times are GMT -6. The time now is 04:41 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2023, vBulletin Solutions, Inc.