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What about dividend paying stocks? Good companies are usually very reluctant to cut dividends even in bad times and with stock prices suppressed, this should le

by gcheong 16y ago

What about dividend paying stocks? Good companies are usually very reluctant to cut dividends even in bad times and with stock prices suppressed, this should lead to higher dividend yields. Probably not a total solution but should be looked at.

philwelch 16y ago
In theory, shouldn't all stocks be dividend paying? If your stock doesn't pay dividends, what makes it any different from baseball cards as an investment?
- gcheong 16y ago
  In theory yes, that's essentially the dividend discount model of stock value.
  - gwern 16y ago
    But is it correct? I mean, AAPL is priced sky-high along with Google, and it apparently last paid out any dividends 15 years ago (http://finance.yahoo.com/q/ks?s=AAPL http://finance.yahoo.com/q/ks?s=AAPL). What on earth dividends are people expecting in the future to push the share so high, especially considering that Apple has said nothing whatsoever about any planned dividends? (And at 9B in profit according to Wikipedia, it certainly could if it wanted to.)
- astrofinch 16y ago
  It's different from baseball cards because a given baseball card can't start paying dividends if all the people who own the card have a vote and decide it should. I used to spend a lot of time playing Railroad Tycoon 2, and in that game a good way to get rich is 1. Put all your money in to a railroad you control. 2. Grow your railroad. As your railroad grows, the value of your stock in it grows. This causes your purchasing power to rise, allowing you to borrow money to buy more stock in your railroad. 3. Eventually you're in a ton of debt, but you've also got a ton of stock in your (presumably successful) railroad. Then raise the dividend paid by your railroad's shares and rake it in. The problem with raising the dividend paid by your shares early on is that it will give your railroad less capital to expand with. So you only want to execute step 3 when your railroad is making more money than you know what to do with. I think there's a good argument to be made that companies like Google know what to do with the money they're making.
  - jimbokun 16y ago
    "I think there's a good argument to be made that companies like Google know what to do with the money they're making." There's a good argument that a company like Microsoft doesn't anymore, which is why they were pretty much forced to pay out a big dividend a few years back. Just to give an example at the opposite end of the corporate life cycle. Just found this article suggesting it's still an issue: http://www.bloomberg.com/news/2010-07-22/microsoft-may-use-cash-to-boost-dividend-this-quarter-after-two-year-lull.html http://www.bloomberg.com/news/2010-07-22/microsoft-may-use-c...
bokonist 16y ago
Dividends fell by about 30% in the recession: http://finance.yahoo.com/q/hp?s=SPY&a=00&b=29&c=1993&d=07&e=3&f=2010&g=v http://finance.yahoo.com/q/hp?s=SPY&a=00&b=29&c=... But yeah, I do think that would be the generally best bet with $5 million. I would most of it in a dividend paying ETF or mutual fund, like DVY or Vanguard Utilties. These funs will pay 4% in dividends, plus, the dividend payout will generally rise at nearly the same rate as income inflation. That's a much, much better deal than CD's which pay 2% a year with no inflation increase.

by gcheong 16y ago

philwelch 16y ago

In theory, shouldn't all stocks be dividend paying? If your stock doesn't pay dividends, what makes it any different from baseball cards as an investment?

gcheong 16y ago
In theory yes, that's essentially the dividend discount model of stock value.
- gwern 16y ago
  But is it correct? I mean, AAPL is priced sky-high along with Google, and it apparently last paid out any dividends 15 years ago (http://finance.yahoo.com/q/ks?s=AAPL http://finance.yahoo.com/q/ks?s=AAPL). What on earth dividends are people expecting in the future to push the share so high, especially considering that Apple has said nothing whatsoever about any planned dividends? (And at 9B in profit according to Wikipedia, it certainly could if it wanted to.)
astrofinch 16y ago
It's different from baseball cards because a given baseball card can't start paying dividends if all the people who own the card have a vote and decide it should. I used to spend a lot of time playing Railroad Tycoon 2, and in that game a good way to get rich is 1. Put all your money in to a railroad you control. 2. Grow your railroad. As your railroad grows, the value of your stock in it grows. This causes your purchasing power to rise, allowing you to borrow money to buy more stock in your railroad. 3. Eventually you're in a ton of debt, but you've also got a ton of stock in your (presumably successful) railroad. Then raise the dividend paid by your railroad's shares and rake it in. The problem with raising the dividend paid by your shares early on is that it will give your railroad less capital to expand with. So you only want to execute step 3 when your railroad is making more money than you know what to do with. I think there's a good argument to be made that companies like Google know what to do with the money they're making.
- jimbokun 16y ago
  "I think there's a good argument to be made that companies like Google know what to do with the money they're making." There's a good argument that a company like Microsoft doesn't anymore, which is why they were pretty much forced to pay out a big dividend a few years back. Just to give an example at the opposite end of the corporate life cycle. Just found this article suggesting it's still an issue: http://www.bloomberg.com/news/2010-07-22/microsoft-may-use-cash-to-boost-dividend-this-quarter-after-two-year-lull.html http://www.bloomberg.com/news/2010-07-22/microsoft-may-use-c...

bokonist 16y ago

Dividends fell by about 30% in the recession: http://finance.yahoo.com/q/hp?s=SPY&a=00&b=29&c=1993&d=07&e=3&f=2010&g=v http://finance.yahoo.com/q/hp?s=SPY&a=00&b=29&c=... But yeah, I do think that would be the generally best bet with $5 million. I would most of it in a dividend paying ETF or mutual fund, like DVY or Vanguard Utilties. These funs will pay 4% in dividends, plus, the dividend payout will generally rise at nearly the same rate as income inflation. That's a much, much better deal than CD's which pay 2% a year with no inflation increase.