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Zecco.com » General Investing » Portfolio Building » Are dividends evil?
Last post 08-01-2008, 2:30 PM by dalporto. 22 replies.
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  •  09-22-2007, 6:02 PM 12650 in reply to 6069

    Dividend growth investing

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    There is a style of investing based on companies that regularly increase their dividends over a long period of time.  The idea is that for a company to increase its dividend on a regular basis, management must have high confidence in its business prospects (because the market often interprets a reduced or eliminated dividend as a sign the company is in trouble, which causes its share price to drop).

    A company that grows its dividends, in other words, is often managed conservatively, which is good for investors.  Also, earnings can be manipulated through legal accounting techniques, but increasing cash dividends paid out over a long period of time do not lie.  There are several books about dividend growth investing (search Amazon with the keyword dividends to find them).

    Mergent publishes a list of companies that have regularly increased their dividends over the past ten years (Dividend Achievers, http://www.dividendachievers.com/Site/others/constituents.php?id=54&preview==) and Standard and Poors publishes a list of companies that have regularly increased their dividends over the past 25 years (Dividend Aristocrats, http://www2.standardandpoors.com/spf/xls/index/DivArist_500_constituents.xls).

  •  10-07-2007, 3:19 PM 14986 in reply to 6069

    Re: Are dividends evil?

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    If the company is able to keep the money instead of paying it out as a dividend and make a higher return on it than you can, then the dividend is not good for the shareholder.

  •  10-24-2007, 2:58 AM 16498 in reply to 14986

    Re: Are dividends evil?

    Reply Quote
    Dividends are great!!!  You do have to hold the stock for at least 60 days during a 121 day period that begins 60 days before the dividend declared date.... or something like that.  I have to break out my old accounting book for that one.

    So pretty much, if you own the stock very short term, the dividend will be taxed at your regular tax bracket rate.  If you do hold it long enough then it becomes a qualified dividend and you pay a flat 15% (or 5% if you are in the 2 lowest tax brackets).

    Comparing to a savings account, any interest will be taxed at your regular rate.  So if you pay 28% in taxes on your earnings, if you made $100 in interest then you pay $28 to the government.  If you have a qualified dividend, then you will pay only $15.

    I always ask for my dividends back.  Why?  Because you still get taxed on your dividends even if you reinvest them.  Take that extra money and look for a different bargain!

    Summary of dividend vs. stocks
    Pro- Taxed at lower rates if you meet holding requirements
    Pro- Your stock can gain as well!  So if you make a ton per share and hold it for over a year and then sell, you will also pay either 5% or 15% capital gains!!
    Con-Can decrease in value.

  •  05-18-2008, 9:47 AM 29304 in reply to 12650

    Re: Dividend growth investing "Achievers Lists"

    Reply Quote

    Thank you, Rule#One, for the two great lists you've hyperlinked for us.

    I have been reviewing them both this rainy May morning in 2008, having added them both to my computer's "Favorites."  Yes, the links are still good.  I strongly recommend the lists to any other members who read this "oldie but goodie" posting. The stocks listed are without a doubt worth researching...

     

  •  06-26-2008, 8:43 PM 32480 in reply to 29304

    Re: Dividend growth investing "Achievers Lists"

    Reply Quote

    I've been really happy with the lists at the Dividend Detective, too.

    http://www.dividenddetective.com/

    Recently picked up shares of ReddyIce (FRZ), which is paying a 12% yield, and they have doubled their payments since 2005.  Bank of America's yield (BAC) is awesome too right now, over 9%. BAC has been raising their payments for 25 years running. 

    Oh, I'd like to mention something. Although it may be true that the growth on dividend paying stocks is not super fast, they also have the advantage of not dropping fast in a bear market. People holding stocks with good payouts tend to hold those stocks longer, which can offer you a margin of safety. Preventing losses should always be a priority over seeking gains.

  •  07-10-2008, 10:49 PM 33319 in reply to 12617

    Re: Canadian Trust Funds w/ Dividends

    Reply Quote
    At least the first two (i didn't click all the way down) are Trusts, which pass their distributions along to you as ordinary income, not dividends. Not that its a bad thing; as long as they're generating cash, they'll be making distributions. How good they are in the long term depends on how you feel the oil situation will play out, not to mention how you think each of their properties will perform.

  •  07-10-2008, 10:54 PM 33320 in reply to 32480

    Re: Dividend growth investing "Achievers Lists"

    Reply Quote
    BAC's yield looks enormous because its price as plummeted. Less than a year ago, they were 50+, now they're 22. If you think they can continue to pay dividends at a 10% rate, then you're betting against all of the institutional types that have driven the price down so much in the first place.

  •  08-01-2008, 2:30 PM 34637 in reply to 33320

    Re: Dividend growth investing "Achievers Lists"

    Reply Quote
    I'm a big fan of dividends.  I get a nice injection of cash into my account every month with which I can re-invest or buy different stocks.  They are also an indicator that a company has confidence in its ability to generate real cash flow (earnings can be positive while cash flow is negative just due to accounting treatment).  Companies with positive cash flow can invest that cash flow in acquisitions, market expansion, or just generally being aggresive in their growth plans.


    Gabriel
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