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Rob Ward

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  • Dividends And 'The Magic Pants' [View article]

    that is a nice way to put it. you can still grow a dividend and earnings while paying it. they just won't be as fast or as much.

    the reason for paying dividends is a principle called "opportunity costs". it is the value of your next best decision. so, a company like GIS pays a large dividend because they get more bang for the buck with a dividend in their opinion versus acquisitions, research and development, buybacks, etc.

    once again, dividends are not good or bad as a rule. each company can come up with the best decision for themselves. dividends take money off of the table (disinvestment).
    Mar 23 03:09 PM | 2 Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    Yes in the sense that dividend money cannot be used to pay down debt, buy back shares, make acquisitions, etc. These things can all increase earnings, and hence the share price in the long run. In this case the P/E ratio can stay the same, but the stock prices goes up.
    Mar 22 01:50 PM | Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]

    I guess we do not own a pair of "magical" pants like the chosen ones do
    Mar 22 01:46 PM | 1 Like Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    which is why more mature companies pay meaningful dividends.
    Mar 22 01:41 PM | Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    My thinking on point 1 is this: You do not re-invest a dividend and someone else does for the same stock. Your ownership is now less than that other person. For example, your 100 shares stays the same, but now they have 100.75 shares after the re-investment. Collecting your dividend is a disinvestment in the stock.

    point 2: Of course, both dividend and non-dividend paying stocks can go up as well as down. My whole point is dividends don't really matter as far as total return goes. When a dividend is not paid there must be more cash left on the books by definition. More cash on the table does have an effect on stock price.

    point 3: If you re-invest your dividends you can absolutely lose all of your money. You are correct if you collect a dividend that money is yours to keep.

    I hope you understand that I am not for or against dividends. I just realize it is not free money. Once paid, that is money that can't be used for acquisitions, research, etc. This is probably why mature companies most often pay dividends. They have "extra" cash laying around without anything better to do with it. And that is ok.
    Mar 21 03:14 PM | 3 Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    Of course I am most interested in my portfolio. The best way to build my portfolio is to understand what I am investing in.

    I do not understand your statement about speculating on other people's portfolio's.

    The reason I responded to your comment is because you are losing % ownership in a company when they pay a dividend if you don't re-invest. Your shares stay the same, but other investors share count goes up from the re-investment. If you do re-invest, it's like not ever getting the dividend in the first place, because your shares are now worth less by the amount of the dividend (this isn't to say that the shares will not recover in time and even go higher because of ever increasing earnings).

    Now, without dividends the same company's shares would be even higher by the amount of those dividends not paid. you would have to sell less shares to get the same "self-made" dividend.

    The point is: spending dividend income or selling shares is losing % ownership in a company.

    As an example, PEP over the last year has gone from $76 to $82 per share. They have also paid $2.27 in dividends along the way. Can we agree that PEP stock should be $84.27 right now had they not paid the dividend? Your dividends may have gotten you more shares but they are worth less because money was paid out for dividends. 1 share at $84.27 is the same as 1.0277 shares at $82 (dividends re-invested).
    Mar 20 05:18 PM | Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    when the dividend is paid the company is worth less by the amount of the dividend. your % ownership may not go down, but your % allocation in your portfolio does. your cash position is now a larger %. if and when the stock recovers it is because the future outlook looks better. it is not "magic".
    Mar 20 08:15 AM | 2 Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    would you rather have 10 shares worth $10, or 5 shares worth $20 with all else equal? 5 shares can turn into 10 shares with dividend re-investment. but those shares might only be worth $10 each. the same 5 shares without a dividend are now worth $20. the dividend didn't change anything really. dividends do let you "withdraw" money without transaction costs though.

    i really do like dividends, they just are not "magical".
    Mar 19 04:02 PM | Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    If the price always drops for a day and rebounds after a dividend is paid then everyone would only own stock for one day and sell. You only need to own stock for 4 days a year to collect all of the dividends. Why do money managers with billions not do this? because it doesn't work that way. dividends are not a free lunch. companies pay a dividend because they have nothing better to do with the money. it also keeps investors loyal to the stock.
    Mar 19 03:50 PM | 3 Likes Like |Link to Comment
  • Dividends And 'The Magic Pants' [View article]
    I commend you for your efforts to explain the "no free lunch" aspect of dividends. I like dividends, but I understand where they come from. The only real benefit to dividend paying stocks in my opinion is the reduction in transaction costs from not having to sell shares to generate income. However, this can be accomplished through ETF's that trade for free. The reality is that probably over 95% of investors will do better with a basket of diversified ETF's in the long run anyway. It took me several years to accept this as I used to be a stock picker. Now, I own a tiny portion of thousands of companies and pay much less than .10% in fees, with zero trading costs.
    Mar 18 11:07 AM | 1 Like Like |Link to Comment
  • The Stress Free Portfolio Project: Introduction [View article]
    I prefer the Buffett approach, but to each his own. VTI, VEU, VCSH is all it takes.
    Mar 14 05:48 PM | Likes Like |Link to Comment
  • How To Build A Portfolio To Reduce Risk, Not Returns [View article]
    how did this get published? nothing new here.
    Feb 11 04:23 PM | 8 Likes Like |Link to Comment
  • Is It Time To Purchase High Yielding AT&T? [View article]
    dividends are not interest payments.
    Jan 14 02:40 PM | Likes Like |Link to Comment
  • Why Dividends Matter [View article]
    My opinion is that Buffett paid over market price for HNZ because of future earnings potential. It won't take that long for future earnings to surpass the premium being paid, and all of those earning go to BRK now.
    Jan 9 01:41 PM | Likes Like |Link to Comment
  • Misguided Interest In Dividend Paying Stocks [View article]

    Very interesting articles. I fall primarily into the DGI crowd (although I only use ETF's from Wisdom Tree). I also completely understand that dividends are not free gifts falling from the sky. I look at it this way. If a company is worth $100 in January and business is good throughout the year and is now worth $105. They decide to give out Christmas bonuses worth $5. This January the company must be worth $100 again, not $105. There is no free lunch.

    The advantage of a dividend to me is that it is money paid to you that cannot be taken away. Without a dividend you are in effect letting your money ride. Of course, you can always sell some shares to accomplish the same thing. Collecting dividends does not require transaction fees (which helps the little guys like me).

    My question to you is about the bond allocation. We have had a very long run of slowly falling interest rates. This has made bond heavy allocations do very well. It looks like we have turned the corner and may have a long period of slowly rising rates. What are some ETF's to consider for this scenario? It is hard to get too excited about Intermediate Term Bonds when principle loss will probably be more than interest earned.
    Jan 1 04:59 PM | Likes Like |Link to Comment