Dividend trick

[Belle69]

"Dividend distributions do not create wealth for shareholders. They can make you feel good and many investors do indeed love them, but they just do not add value. What cash dividends do for you is shift value from one of your pockets (stock) into another (bank account cash), exactly in the same manner that selling stock would.

With that in mind, I do not intend to say dividends are bad. They do not destroy value either after all (except for tax implications), so loving them comes at no cost. And that is possibly why I personally still love them so much. Call it free love."

 

[w1rbelw1nd]

I agree that dividend ain't bad, but I think you seem to imply that dividends are only given out to make shareholders happy.

Normally companies which dish out huge dividends (telcos, for example) have less opportunities to reinvest in itself such that the return of this investment will be higher than the current returns. So they would rather give out the cash so that in terms of ROE or ROA the company's performance will remain constant

 

[Rmondo]

Well in theory yes, in reality that might not hold. For example in other countries there are things known as capital gains and dividend tax.

Fyi,

Real-World Factors Affecting Dividend Payouts - Complete Guide To Corporate Finance | Investopedia

 

[alexchia01]

I'll always trust a company that gives regular dividends than one that don't gives any dividend at all.

A company that gives dividend is likely, though not always true, one that truly made profit for that financial period and wanted to share its profit with the shareholders who supported it.

A company that don't gives dividend may report that they made profit for that financial period, but without the dividend, I would doubt its sincerity and report. This is because the company have not proven to me that it wants to share its success with the shareholders who are supporting it. The top management may be interested to just reward themselves with high pays and big bonus on the expense of its shareholders. Plus, no dividend may also means that the report could be fake and just a means to hide the true from shareholders and the authorities.

You may says that dividends don't add value to the company, but it sure tells me a lot about the people who runs the company.

 

[salesgp]

Belle69,

if you want to create wealth, go for penny stocks. cheersss.

 

[alexchia01]

Belle69,

if you want to create wealth, go for penny stocks. cheersss.

This is a dangerous advice. Not all penny stocks can create wealth, in fact many penny stocks are junk.

The correct way to create wealth is to buy strong fundamental stocks at discounted price.

 

[C32B]

Belle69,

if you want to create wealth, go for penny stocks. cheersss.

Wah, no different from gamble.

 

[Mecisteus]

in the short term, its true you can view paying dividends like moving from 1 pocket to another. for an example, if you receive $100 from your father as pocket money, it means you are $100 richer but your family's wealth as a whole remains the same.

but if you look at the longer term, your family's wealth will rise because of higher productivity, salary increments, higher paying jobs, etc. in the future, your father can afford to give you $200 as pocket money. if you are a good child, you can choose to save or "reinvest" your pocket money for further studies or setup own part time business while studying. your family's wealth can increase further.

this is the same analogy of what long term stock investing is all about.

 

[Rmondo]

Belle69,

if you want to create wealth, go for penny stocks. cheersss.

Might as well ask Belle69 to head to a casino.

 

[Fibonacci236]

Wanna create wealth must risk more
Penny stocks + leverage ( cfd ) .

 

[Rmondo]

I'll always trust a company that gives regular dividends than one that don't gives any dividend at all.

A company that gives dividend is likely, though not always true, one that truly made profit for that financial period and wanted to share its profit with the shareholders who supported it.

A company that don't gives dividend may report that they made profit for that financial period, but without the dividend, I would doubt its sincerity and report. This is because the company have not proven to me that it wants to share its success with the shareholders who are supporting it. The top management may be interested to just reward themselves with high pays and big bonus on the expense of its shareholders. Plus, no dividend may also means that the report could be fake and just a means to hide the true from shareholders and the authorities.

You may says that dividends don't add value to the company, but it sure tells me a lot about the people who runs the company.

That is a very dangerous assumption to base judging the management on. Dividends alone don't tell the whole picture.

Firstly, one of the drivers of a firm's dividend is financial obligation. To cut things short, a firm can essentially pay out dividends by borrowing. The other way to look at it, is that a firm can also liquidate assets to pay dividends. Should a firm be liquidating profitable assets that can continue to generate wealth and shareholder value for the sake of satisfying the need to look good paying dividends? Conversely, the question is also, should a firm really be borrowing to pay dividends?

Next, a firm that doesn't pay dividends might not necessarily indicate incompetent management. It really depends on the industry the firm is operating in. Growth companies or companies operating in industries that are not mature are expected to grow by re-investing profits. This can be in the form of acquisitions to consolidate it's position within the industry to secure profits in the longer term. Or it can also be to undertake projects that generate value for shareholders. If this is so, should investors and management be penny wise pound foolish to be fixated on the penny (dividend) over the pound (more profits over time)?

Finally, if you are investing in non-sg stocks as mentioned earlier, there are reasons why firms in other countries such as US might decide not to pay dividends. There are other ways to distribute to shareholders, such as share buybacks.

Check out the article below, which mentions Apple as well as Berkshire Hathaway.

Steve Jobs Wouldn't Have Paid a Dividend - Forbes


"Plus, no dividend may also means that the report could be fake and just a means to hide the true from shareholders and the authorities."

Just to add on, the above methods I mentioned about how firms can pay dividends while destroying shareholder value at the same time, are legal. Publishing a fake report on the other hand is illegal. With the 2 options, which do you think firms will likely choose?

 

[alexchia01]

That is a very dangerous assumption to base judging the management on. Dividends alone don't tell the whole picture.

Firstly, one of the drivers of a firm's dividend is financial obligation. To cut things short, a firm can essentially pay out dividends by borrowing. The other way to look at it, is that a firm can also liquidate assets to pay dividends. Should a firm be liquidating profitable assets that can continue to generate wealth and shareholder value for the sake of satisfying the need to look good paying dividends? Conversely, the question is also, should a firm really be borrowing to pay dividends?

Next, a firm that doesn't pay dividends might not necessarily indicate incompetent management. It really depends on the industry the firm is operating in. Growth companies or companies operating in industries that are not mature are expected to grow by re-investing profits. This can be in the form of acquisitions to consolidate it's position within the industry to secure profits in the longer term. Or it can also be to undertake projects that generate value for shareholders. If this is so, should investors and management be penny wise pound foolish to be fixated on the penny (dividend) over the pound (more profits over time)?

Finally, if you are investing in non-sg stocks as mentioned earlier, there are reasons why firms in other countries such as US might decide not to pay dividends. There are other ways to distribute to shareholders, such as share buybacks.

Check out the article below, which mentions Apple as well as Berkshire Hathaway.

Steve Jobs Wouldn't Have Paid a Dividend - Forbes


"Plus, no dividend may also means that the report could be fake and just a means to hide the true from shareholders and the authorities."

Just to add on, the above methods I mentioned about how firms can pay dividends while destroying shareholder value at the same time, are legal. Publishing a fake report on the other hand is illegal. With the 2 options, which do you think firms will likely choose?

Please don't assume that I only looks at dividend and nothing else.

I also looks at other fundamental data, just that when all fundamental data are the same, I'll trust the one with dividend more than the one that don't give dividend.

If a company gives regular dividends, but fundamental sucks, I'm also Not interested.

Don't twist the meaning of my post to suits your theory.

 

[limster]

Not much point talking about 'theory' without mentioning actual share names... That's why I like to see actual portfolios like DW's on his blog.

it is harder and harder to find good dividend shares in Singapore. Through the years many high dividend yield shares delisted. Make capital gain , but long run, hard to find replacement share with equally good yield. Eg: Cerebos, Singapore Food, Allgreen, to a lesser extent, F&N

I am now holding Hong Leong Finance as a dividend play, but I feel that it is another potential buyout and delist target if the finance sector consolidates. Maybe I should slowly accumulate more...

 

[lee_tired_sheep]

dividends are good because by giving you your money back the company is allowing you to make your own investment decision. if they keep it in their cash hoard, or use it to diversify, then you lose that ability to choose.

 

[Rmondo]

Please don't assume that I only looks at dividend and nothing else.

I also looks at other fundamental data, just that when all fundamental data are the same, I'll trust the one with dividend more than the one that don't give dividend.

If a company gives regular dividends, but fundamental sucks, I'm also Not interested.

Don't twist the meaning of my post to suits your theory.

"I'll always trust a company that gives regular dividends than one that don't gives any dividend at all.

A company that gives dividend is likely, though not always true, one that truly made profit for that financial period and wanted to share its profit with the shareholders who supported it."

Why so aggressive? Everyone is here to learn from each other for god's sake.

I am stating a more complete picture for someone who might take your comments at face value and invest for the sake of dividends. Well it is good to know that you do consider other factors, but I rather write something in good faith just in case these were factors you might have missed out. Because I would want someone to do that if it were me, since pride and ego has no value when it comes to investing.

I wrote to provide a clearer picture on dividends, and honestly if anyone believes that the non-constructive ways of paying dividends will never see the light of day, then by all means you can choose to ignore them and brush them off as "theory".

Because every firm is truly ethical and only has the welfare of investors' at heart right? Also, if firms did it, their accountants and CFO will document it down clearly, that although they had a couple of valuable investment opportunities lined up, they chose to yield to giving dividends to remain popular.

 

[Dividends Warrior]

Not much point talking about 'theory' without mentioning actual share names... That's why I like to see actual portfolios like DW's on his blog.

Yup. I put money where my mouth is. GPGT.

 

[Rmondo]

Not much point talking about 'theory' without mentioning actual share names... That's why I like to see actual portfolios like DW's on his blog.

it is harder and harder to find good dividend shares in Singapore. Through the years many high dividend yield shares delisted. Make capital gain , but long run, hard to find replacement share with equally good yield. Eg: Cerebos, Singapore Food, Allgreen, to a lesser extent, F&N

I am now holding Hong Leong Finance as a dividend play, but I feel that it is another potential buyout and delist target if the finance sector consolidates. Maybe I should slowly accumulate more...

Not so easy to dig out black sheeps, you'd have to spend considerable amount of resources to learn every aspect of the firm to gain a good insight. Even firms like Muddy waters are hit and miss with their picks in shorting firms that are fundamentally unsound.

Stick to the bigger firms and you probably are slightly safer, since they're watched by more analysts. Chances are if they're embarking on undesirable behaviour it'd be flagged earlier. Your danger with them would be fraud, in which case doesn't matter what dividends they pay or don't pay. You're going to get burnt, just a matter of how bad it will be.

There are also legitimate and justifiable reasons for firms to issue dividends financed by borrowing. This you can see easily, the CFOs will practically announce it to the whole world. i.e Apple, doing it for the sake of avoiding taxes.

 

[iCuteCube]

To me, i feel that giving dividend equals to a locked in profits.

Left pocket to right pocket, but at least it is pretty much guaranteed dividend amount i would get. But for those growth stock, there is not much of a guarantee, even though the payout may be great ultimately.

End of the day is still the same theory, do what suits you the best.

 

[Belle69]

Belle69,

if you want to create wealth, go for penny stocks. cheersss.

No need your advice thanks. Tonite Facebook Shares hit 71.33!

Blackberry,QTWW,BOA reaped in $US568. 2.5 hrs of excitement via mouse clicks.

Checking out 2am.

I don't play for dividend.

 

[alexchia01]

"I'll always trust a company that gives regular dividends than one that don't gives any dividend at all.

A company that gives dividend is likely, though not always true, one that truly made profit for that financial period and wanted to share its profit with the shareholders who supported it."

Why so aggressive? Everyone is here to learn from each other for god's sake.

I am stating a more complete picture for someone who might take your comments at face value and invest for the sake of dividends. Well it is good to know that you do consider other factors, but I rather write something in good faith just in case these were factors you might have missed out. Because I would want someone to do that if it were me, since pride and ego has no value when it comes to investing.

I wrote to provide a clearer picture on dividends, and honestly if anyone believes that the non-constructive ways of paying dividends will never see the light of day, then by all means you can choose to ignore them and brush them off as "theory".

Because every firm is truly ethical and only has the welfare of investors' at heart right? Also, if firms did it, their accountants and CFO will document it down clearly, that although they had a couple of valuable investment opportunities lined up, they chose to yield to giving dividends to remain popular.

Fair enough, I value your input.

Based on your article, I assume you are from the school of value investing.

I've great respect for Warren Buffett and Steve Jobs.

Their thinking is that if the company can increase value on the dollar that could be given out as dividend, they should keep the money to generate that value rather than given out as dividend. This'll in return, increase shareholder value.

However, I'm not from that school of through. I'm from the school of dividend investing.

I believe that if the company is doing well, it should reward the people who are supporting the company, in the form of dividend. This'll in return, gather more support for the company to encourage it to grow some more.

Beside, I believe the dollar given out as dividend can equally increase in value in my hands.