When is a dividend not a dividend?
The latest thing "conservative" brokers are preaching these days is to buy stocks that pay dividends. Everyone likes dividends. I know I do, but when Wall Street tells me something I am automatically suspicious because they lie to me every day. Is this a new scam? Let's take a look.
When you buy a bond or a CD at the bank it pays interest and is a real dividend. You might get a check every month, quarter or annually or receive a credit to your account. The amount of your principle (what you paid for it) remains the same. Yes, that is a true dividend.
Companies make big splashes about raising their dividend. It was 50 cents per share, but we have raised it to $1.00. Big deal. Yes, you will receive a check and at least you know the company has cash available to pay you. That is an indication the company is in good financial condition, but there have been many of the big names on the NYSE that have continued dividends even when they have lost money. How can that be?
Currently Microsoft has announced a dividend of $3.00 per share. The talking heads on CNBC-TV tell us they are loaded with cash and want to distribute it to their stockholders. Many people buy the stock in anticipation of the dividend as they think they will be getting an extra $3.00 per share. They are in for a big surprise.
The day that dividend is paid Microsoft stock (symbol MSFT) will automatically drop $3.00 per share. Today $27.00; tomorrow $24.00. Folks, this is NOT a dividend. This is a distribution of capital. You are being paid in your own asset. The fool that believes the Wall Street mumbo-jumbo will not have one extra penny after the dividend than he did before. In fact he will have less. Why?
The stockholder will now be allowed to pay income tax on the "dividend" distribution. To make that "dividend" seem even better the Bush administration has reduced dividend taxes from 38.6% to 15%. Thanks, Mr. Bush. Thanks for nothing. I can't blame him for more Maul Street smoke and mirrors. He has just made it cost less to get back your own money.
Companies seldom pay large dividends and they are paid quarterly. A $30 stock that pays a 4% dividend ($1.20) on a quarterly basis shows a decrease in the stock price that day of 30 cents per share and is lost in the noise of trading. Few notice that part of the price change is due to the "dividend".
When you own the stock of any company the most important criteria is to find one that is in a long term upward trend. Never buy a stock that is showing a decline no matter how "good" the company may be. Even sideways movements should be avoided. Keep in mind you are buying the stock to make money. Forget the dividends and all other "reasons" and remember if it isn't going up, don't buy it!
F*R*E*E investment letter. http://www.mutualfundmagic.com Copyright 2004 Albert W. Thomas All rights reserved. Author of "If It Doesn't Go Up, Don't Buy It!" Comments to http://www.mutualfundmagic.com Former 17-year exchange member, floor trader and brokerage company owner.
cleaning service near Bannockburn ..The World Bank claims that some two billion of the... Read More
It's about time someone spoke the truth concerning outsourcing. The... Read More
THERE'S SOMETHING TO BE SAID FOR standing firm in the... Read More
Starbucks earnings are up again and so is their stock... Read More
There are many important things you need to know to... Read More
The basis of diminishing return discussions surround such simple notions;... Read More
Ever have one of those sample boxes of candy? Each... Read More
I know there are a lot of you out there... Read More
Every day I hear from the "experts" on CNBC-TV and... Read More
There is so much involved in developing peak performance, that... Read More
Mutual fund investing is a lot like Thai cooking. Everyone... Read More
Most stock traders know that momentum trading can be a... Read More
Every day I see in the financial section of newspapers... Read More
Its dinnertime and the phone rings. It's Joe Noname with... Read More
To begin, you might look at playing the stock market... Read More
The big bad bear is stirring again. So far he... Read More
An investor can find and research the best stock on... Read More
Someday you may want to retire and continue to live... Read More
1. Do not spread your money too thin.My friend has... Read More
There are major differences between trading stocks and trading futures.... Read More
As a novice trader, you'll often feel the need to... Read More
Recently I was invited to appear on a live CNNfn... Read More
The stock market is very unstable at this time going... Read More
Money: the most charged word in the planet. It means... Read More
I am taking the time to help others learn the... Read More
pet-friendly home cleaners Mundelein ..Recently I was invited to appear on a live CNNfn... Read More
Duck! No I don't mean a quack, quack. I meant... Read More
This is an extract of an article which was first... Read More
We've all heard of the stock market and probably have... Read More
Peter is a professional trader, Paul is not. Peter has... Read More
Question: How does it get better when it gets worse?Last... Read More
One of the big advertising kicks today from mutual funds... Read More
Well maybe that's overstating it a little, but it's certainly... Read More
We all know the expression, "My country, right or wrong",... Read More
First let's see what protectionism is. According to Mr. Webster... Read More
Every Wall Street analyst, financial planner and broker will tell... Read More
Analyzing growth stocks is an important focus for any investor.... Read More
When it comes to stock market trading it PAYS to... Read More
Jack and Jill went up the hill to fetch a... Read More
I am sure that if you have a brokerage account... Read More
As I have said many times before in this column... Read More
I know there are a lot of you out there... Read More
The Bollinger Band theory is designed to depict the volatility... Read More
If you have a pension plan at work you will... Read More
Every day I see in the financial section of newspapers... Read More
Even if you don't own any of their stock or... Read More
Options trading can increase the profits you make when trading... Read More
With over 6,000 mutual funds available, it may be tempting... Read More
After finding the price of a particular stock, usually the... Read More
There is nothing more exciting than finding an undervalued stock... Read More
Stocks & Mutual Fund |