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Southern Co. (SO) and Verizon (VZ) may be the "poster children" among high dividend-payers as...
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Saturday, August 25, 2012, 10:00 AM ETSouthern Co. (SO) and Verizon (VZ) may be the "poster children" among high dividend-payers as the quest for yield takes the utility (XLU), telecom (IXP), and consumer staples (XLP) sectors to frothy levels. The flip-side are health-care services (XHS), autos (CARZ), housing (IYR), and tech (XLK) - lower payers, but with relative valuations that have rarely been this cheap.
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Looking for example at XLK, it paid out 42 cents in 2004 and has never paid out the same amount since. Dividends have been erratic and there is no long-term growth trend. Even the short-term growth trend in the last 3 years is not spectacular: 23.67 cents in 2009, 32.28 in 2010, 38.45 in 2011, and 20.50 in the first half of this year. That looks a lot more like a steep recovery followed by decelerating growth than long-term accelerating growth. If you bought at the best price of 2002, your yield is now just under 4%, and in most of those years you collected little. If you bought VZ near its low in 2002, you not only collected many times more income between then and now, you have a yield of about 7.1%, much more if you reinvested.
That's all backward-looking, so maybe we'll see tech and some of these other sectors start to dramatically accelerate distributions in coming years. If that happens, then those sectors are indeed historically cheap. But there's simply no track record of growing or even sustaining distributions from most companies in these sectors, and therefore no compelling argument that they are indeed cheap. A better case might be made that a particular stock is cheap; then we can examine the business and the board's view on providing a return to shareholders and weigh those along with the current payout against the market price. One cannot simply look at some non-dividend metric and conclude that an entire sector is historically cheap when it is yielding next to nothing.
Hang up on Verizon - Real Money Pro Aug. 22, 2012
VZ is in fact very overvalued and carries a large debt load. Can't pay both the shareholder and their debt. Earning 2.00-2.50 a share and paying 2.00 currently. 52 billion in debt to go with it. Doesn't really sound like steal to me
XLK is and index fund and it pays out just as much as it did in 2004. They can change their internal policy as well as the companies it owns.
The current valuations are above normal and will likely regress to lower absolute share prices.
I am willing to accept that I will never get the best price on anything I buy. I understand that if I were perfect at timing the market, I could obtain the income I require with a dramatically lower capital outlay. And I accept that I cannot be, and will not be. What I am not willing to accept is finding myself stuck holding assets I don't want, never wanted, assets that aren't generating a decent return for me and have no prospect of doing so. And I am not willing to accept finding myself in a position in which I am being bullied by the market because I purchased an asset that gives me no way to earn a return on it other than by selling it. Never. That's for traders, who think they know what other people will do. I don't, and I don't want to find myself caring.
This doesn't apply to any of the stocks or sectors listed, at all.
We know how it turned out.
He said Verizon's revenue is growing at 2%, when in fact it is near 4%.
VZ was very expensive recently and should have been sold to allow for repurchase at a discounted price in the future.
issued me in the last several years.
And that growth last 12 months, well that was just outrageous.
Where do you suggest I send that money?
Afterall I certainly shouldn't have received any of it over
my original investment.
[Tongue planted firmly in cheek]
snow