"Peregrine Maitland" <273589roots[at]att.net> wrote
- quote -

Yes. It's the growth rate of the income (be it dividends or
interest) with which one need be concerned. Bond income is
simply not going to keep growing in the long run. Inflation
will destroy the value of bond income over the long run of
say ten years and more.

- quote -

This is a good point. I agree one may have to shop around a
little and compare mutual fund expense ratios with what your
preferred brokerage will charge for the purchase of bonds,
in an economically sized amount. Unfortunately, since the
yield curve inverted a few months or so ago, it's
particularly difficult to make comparisons. On the positive
side, at this point the difference in returns (between bond
mutual funds and individual bonds) is not likely to be
large, if one is judicious. When interest rates were at rock
bottom a couple of years ago, I felt differently.

I wrote of S&P 500 dividend achievement earlier. I see I
need another amendment. The S&P 500 is about half value
stocks (paying a nice dividend) and about half growth stocks
(paying no or a small dividend). Investing in an index of
strictly large value stocks will improve the dividend
achievement of the portfolio by quite a lot. Ten percent or
more dividend increases, on average per annum, are common
among large value stocks. This rate of dividend increase has
thrashed inflation for the long term.

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message
news:dM9Xg.5834$Lv3.1118[at]newsread1.news.pas.earthlink.net...
- quote -

Thank you for your comments . Would your statement about dividends and
inflation (above) hold true for, say, residents of NY City whose income is
taxed on federal, state and local levels?

Would your earlier comment that "...ladder[ing municipal will do] a little
better than the [municipal bond] fund, in general, because of the expenses
that attach to fund management" also be generally true when considering
ongoing brokerage expenses incurred in the cost of laddering.

TIA

Peregrine Maitland

Will Trice wrote:
- quote -

broker charges you you may have to pay to reinvest the dividends

Tad Borek wrote:

- quote -

Not to mention that getting a dividend is like cashing out a few shares
with no transaction cost.

Do I have to stand in the corner now?

-Will

"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:1160574389.214431.36330[at]e3g2000cwe.googlegroups.com...

[snip]

- quote -

It's got more bite than that. In addition to the incremental gain
in stock price, you also have the next (and all future) dividend
payouts handing you more money -- 'cause you now own more
shares. It compounds quite nicely.

On Sun, 8 Oct 2006 09:43:37 -0500, "Peregrine Maitland"
<273589roots[at]att.net> wrote:

- quote -

My head hurts. The next person who posts more mumbo-jumbo on this
thread is going to stand in the corner for a week.


-HW "Skip" Weldon
Columbia, SC

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote
- quote -

On re-examining Shiller's data, I think the above needs
correction. Dividend increases for the S&P 500 have averaged
about 3.9% a year since 1871. It's been a little better in
the last several decades, at around 5.5% a year. Since
dividend achieving companies are overwhelmingly large caps
like those in the S&P 500, I think all one can say is that
using dividends for income has tended to ensure an income
that keeps up with inflation, but this income will not
thrash inflation.

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

This is why I wrote "may." Remember the moderation policy
precludes lengthy essays in a single post. :-)

- quote -

I'll say. I wouldn't even say "in theory," because of all
the other possible, and as you point out, sometimes
nefarious, uses of extra cash.

- quote -

Ha. But I am actually going to take the above seriously as I
evaluate companies. I have been using the converse: Show me
a dividend payout ratio over 100% (and they do occur for the
short run), and I'll show you a company very likely about to
cut its dividend, for one. Though so far, the share prices
of the four companies I have owned that cut their dividends
all rebounded within a few years. Speaking of using
dividends for income that hedges inflation, etc.

Elle wrote:
- quote -

It doesn't necessarily sit on the balance sheet as cash...many low- or
zero-dividend stocks use other methods of getting rid of excess capital.
They can buy back stock, or acquire other companies, in the process
increasing the value per share. So *in theory*, the S&P 500 could have
achieved the same net return with zero paid to dividends, with the value
received purely through capital gains.

That's kind of academic though, and matching the return would require
that each company independently allocate its excess capital as
efficiently as the market does (highly doubtful). There are plenty of
examples of companies that used excess cash for acquisitions that didn't
pan out. If those dollars had been paid out to shareholders who could
then decide how to re-allocate, argubly they'd end up creating more value.

I personally like the "discipine" and "reduce squandering" rationales
for paying dividends. Show me a company with a big pool of cash and no
dividend, and I'll show you a Gordon Gekko looking to raid it, or a
group of greedy senior execs cooking up "performance bonuses."

-Tad

"rick++" <rick303[at]hotmail.com> wrote
- quote -

Graphs are hard to come by, from my reading. The estimate
below indicates what you heard is pretty close to reality.

Finance.yahoo.com puts the S&P high in 2000 at about 1553
(March 24), with a dividend of about 16.27 (from Yale
Academic Robert Shiller's data), for a dividend yield of
about 1.05%. The S&P is about 1350 now with a dividend of
about 24.08. Assume seven years (start of 2000 to end of
2006) have passed. Dividends grew on average about 5.7% a
year during this period. The yearly dividend return on the
original investment would be

Year Dividend Return
2000 1.05%
2001 1.11%
2002 1.17%
2003 1.24%
2004 1.31%
2005 1.39%
2006 1.46%

Assume reinvestment, so multiply the above returns
appropriately (e.g. 1.05% becomes 1.0105) to get an overall
dividend-based return of about 9% from 2000 to 2006.
Starting with 1550 in one's account in 2000, one's total
today would be about 1490 ( = 1350+1550*.09).

The result should differ from reality somewhat because among
other things (1) dividends actually grew much slower than
6.7% a year from 2000-2003; (2) I rounded off numbers used
in compounding, with an eye towards a conservative result;
(3) start and stop dates are fuzzy. Someone should check my
math, too.

rick++ wrote:
- quote -

T Rowe Price has some of this on their web site. The most recent issue
of their investment magazine and past issues of their magazine have
this documented.

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

Having no dividend may mean the company stores its excess
earnings in a relatively low yielding (compared to stocks
for the long run) money market account. You (Joe and Matty)
do not know that there's a good place for the company to
invest the money. I do not think it's simple at all; rather,
it's a business decision made by company leaders depending
on way more variables than the average shareholder can
process competently. It seems like you two are eager to
second guess all companies' management's decisions. Also, by
ceasing payment of dividends, the company loses the tax
advantage of issuing dividends. Note this is another reason
why companies pay dividends instead of plowing all the
earnings back into the company.

I still disagree with Matty but we already reached the point
where we are just repeating ourselves.

- quote -

The day of the dividend, it is a "zero sum" transaction- I do think
this is semantics in many respects. If the dividend was reinvested you
do have more shares though... so in effect any incremental gain in
stock price will benefit more shares which you now own.

If the goal is an income producing portfolio, dividend paying stocks
are worth a portion of the portfolio. Bonds, CDs and Money markets are
definitely part of equation as well- they yield higher "usually"
relative to dividend yield of large cap value stocks (3% yield is a
GOOD portfolio for stocks and 4% could be "easily" achieved with a mix
of the other instruments).

- quote -

Are their any graphs of of S&P dividends re-investment
versus bare index? I heard the claim the S&P already
passed its year 2000 peak if you consider the former,
but havent seen the actual graph. Sometimes an
index mutual fund will have a chart of such.

MATTY wrote:
- quote -

This was what I was attempting to get around to. That the Dividend would
simply get added back to the value of the stock. Dividend reinvestment
would get closer to this scenario, but having no dividend would give the
stock owner more control as to when to take gains (and as you say, you
can sell a small fraction of holdings each year).

Will Trice wrote:
- quote -

Somehow my post never posted so i may end up with 2 replys .

i think we got a little off base here, study after study seems to
always show as a group dividend paying stocks seem to out perform
,thats not a question.

my point is that the dividends themselves are a zero sum . the stock is
adjusted downward by the same amount so nothing gained nothing lost.

there are quite a few reasons people like dividend paying stocks but
they are more pschological then really based on any gain from the
dividend itself. one of which is that most people think of a dividend
as a gain like bank interest where its not a zero sum event. its not
the same thing yet i think if you ask most uninformed people about
dividends they will tell you how their dividends are like when they get
bank interest, they just have no clue how it works.

30% of the s&p gains have been dividends but i cant help but wonder how
much of that 3-% would still be intact or even exceeded if the
companies didnt pay a dividend and give away company assets every
quarter.

couldnt we all just sell 2-4% of our holdings anyway every year and
create the same effect.

joetaxpayer wrote:

- quote -

Some of the most successful investors have stated that dividends, and
particularly increasing dividends, are a positive attribute for
investing in a particular company [e.g. Benjamin Graham (as Elle has
pointed out here in the past) and Peter Lynch]. This is usually given
with the caveat that the payout ratio is not too high, thus addressing
your other point above.

-Will

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

I think the distinction between growth (generally no
dividends) and value (generally a nice dividend) stocks is
so commonly discussed and studied that it's an easy enough
exercise to compare returns or find online sources that do.
Regardless, I am not arguing that value stocks outperform
growth stocks, because there are a lot of ways or time
periods to measure that and I am not interested in that
minutiae. I am saying value stocks do well, and this may be
sound-bite attributed to dividends.

I am still left guessing as to what Matty's point is, other
than he insists on the one hand that dividends make no
difference (in that instant of the day when they're
"officially" paid, I guess), but then seems to admit that
dividend paying stocks do well.

- quote -

I think the debate over "value vs. growth" stocks is much
repeated on the net. So I won't initiate or join such a
debate here. As a point of information, I will add that
dividend paying companies do not generally take all earnings
and pay them out as dividends. The popular stock metric
"dividend payout ratio" takes dividends per share and
divides by earnings per share. I suppose the ratio tends to
be close to around 50% for large cap "value" companies, from
my general study.

Elle wrote:

- quote -

Elle, Matty, I think you are circling around the same issue here.
If one were to group 'dividend paying stocks' from the non-payers, there
would be a bit of a skew toward larger cap stocks of mature companies.
So comparing their long term returns would be a tough exercise (you'd
first have to find groups of companies with similar market caps to make
a fair side by side comparison, I'd think)

Elle, I agree with you, and was going to reply to the OP in a similar
vein, suggesting DVY as an alternative (to the bonds). Matty is
suggesting that dividends are a zero-sum situation, citing that the day
a stock goes ex-div, it's price for that moment drops by the dividend.
Matty could also have noted that Berkshire Hathaway has never issued a
dividend, and has been trading at a gabillion dollars lately (well,
$99,390 as of today). No one can argue it was a bad stock for the lack
of dividends.

There are those who feel that dividends or stock buy backs are a
company's way of saying "we don't know how to invest this extra cash, so
here, take it." Don't companies all need to invest for their own growth?
JOE

"jIM" <noreplysoccer[at]hotmail.com> wrote
- quote -

Oops. I should have written that this thread is the first I
could find in this newsgroup where "MATTY" mentions
dividends.