%7 RETURN FROM DIVIDENDS

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I got an account with optionsxpress so I clicked on their stock screener and searched all the dividend yielding stocks. I excluded every stock priced less than $10. I sorted them descending by dividend yield.

There were a bunch of stocks but what striked me the most is there were some stocks rated BBB and higher and yet their dividend yield is more than %7.

I understand that there is a potential of loss on the stock price. But one of the stocks that got my attention was Deutsche Telekom (Ticker DT). They have been paying dividend consistently and they are increasing their dividend steadily for some time. I was not able to find their historical dividend payments.

One more thing to mention is that you pay income bracket tax on the interest but only %15 flat on dividends.

So what do you guys think about long term investment on dividend paying stocks?

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You have to do some deep research, but it is an option. I own shares of Windstream (WIN) that pays ~11% dividend and I've had it for almost a year. The stock itself has risen by about 20%, so that's a bonus. But you have to watch out for companies that are overpaying dividends. Both DT and WIN are paying out more than they can really afford, just to keep investors like you and me. If they can't turn it around eventually, they won't slowly die, they will die instantly. I'm probably going to sell when I can claim long term gains because if they decide to lower the dividend, investors will flee in droves, and the sock will plummet. A payout ratio close to (or over) 100% is a red flag.

Agency mortgage REITs pay 15+% dividends, because they are riding the positive carry between near zero short term funding and the yield from agency mortgage backed securities. Agency mortgage backed securities have no default risk. And some REITs hold more ARMs to minimize exposure to prepayment risk. Everyone know their returns are going to go down because the upcoming Fed rate hikes. However, these guys have also been keeping their leverage well below the maximum they can achieve, so when mortgage rates rise they have some dry powder to buy.

ETA: forgot to give couple of names--ANH, CMO

Risk vs. Reward. Dividend paying stocks are typically "value" stocks -- not in a growth stage. So you have some opportunity cost there. Also, their dividend payout percentage can sometimes be high because of a recent fall in price -- which inversely affects dividends. Also, be aware that there are several niches that pay high dividends. For example, there are oil trusts, usually MLPs (pvx for example) that pay high yields. (PVX paid .75 last year on current price of 8.21.)

As you stated, the two most important things to think about are will they be able to maintain the dividend (what's their cash position, earnings, etc) and what will their stock price do. For example, the Bank of America dividend looked pretty sweet 2 years ago. They paid $2.24 in 2008. Then in 2009, they paid $0.04. That would not feel good if you were counting on that money. If you want to spread your risk on the both of these, you could find a "dividend stocks" etf like DVY which paid $1.66 last year in dividends (current stock price 45.36).

Also, you may want to think about closed end funds which are selling at a discount. You can get some great stats and search features on closed ends at cefconnect.com. However, be aware when you are looking for dividends, which funds are using leverage to produce those dividends. While that is a legitimate tactic, it also increases your risk of loss.

Just some food for thought.

Here is my general advice for a beginner:

Do your research first. One thing you need to keep in mind is that all published dividend yields are based on historical rates, not future rates. During the downturn from late 2007 to early 2009, many stocks would have showed a dividend payment on any finance profile. But actually they suspended them, so make sure dividends are still being paid and at the rate you expect. DOW is a an example of company that drasticially reduced their dividend durign the downturn and are just now getting their feet back on the ground.

The most successful dividend strategy over the long term is dividend reinvestment or DRIP; electing to purchase more stock with the dividend rather than receiving a cash payout (taxable either way). Most established and larger companies offer these types of programs. Ideally you want a company that has growth potential and a solid business plan/strategy for the long term (moat, property rights, monopoly, etc). In more recent times you would have made a killing with DRIP on XOM UTX PG for example because they split their stock multiple times also. Let's say you only buy 200 shares, after 3 splits that's at least 800 and with DRIP it would even be larger.

Just keep in mind share prices can be volatile and one bad earnings release and you could have lost all your dividend gaines for 3-4 years and more in one day. If you focus too much on high yield versus solid company, you could esaily fall into this trap. The most stable companies can be relied upon for dividend, but they won't pay the highest yields; example KO.

Someone mentioned mortgage REIT's; they are better for short term play versus long. Once lending rates increase the yields will drop dramatically, along with share price. You have to get in and get out at the right time. Like anything else, it's all about risk versus reward. The yield is higher, but so are the risks.

Last point; your effective DIV yield is based on what you paid for your shares, not what's posted on some finance web site. You buy 100 shares at $20, and another at $25. A $1/year DIV means your overall yield is 4.44%. If the current share price goes to $30 and shows 3.33% you are doing better. You mentioned DT; if someone paid $25-26 for their shares, then they are really only getting a DIV return rate of ~3.50%.

Remember, Corporations have no obligation to give dividends and can reduce/stop at any time, and bailing on a dividend that people used to count on can hurt the stock further hurting your holdings.

With anything do your research.

I've had success so far with PVR (coal company). Was a 9.5% dividend, stock has actually gone up 20% or so since I got it, so the effective dividend is down in the 8 range.

I would look for a company that actually has earnings to cover the dividend payout (t, for instance, @ 6.7% div yield).

I am a big fan of div stocks. I have shares paying out over 17% right now since I took a risk in march 2009. Not only that the stock has almost doubled, eliminating sub-$19 isn't always the best idea, my purchase prices were between $4-5/sh. Good thing is to do massive reading on a company you are interested in, few of mine publish cash flows and the amount of the profits they would like to pay. Div history isn't always the best indicator, GE is the best example.
Currently there is quite a few strong div companies that have been raising I hold SJM and expect them to raise this year again, 3 or 4 cents/qtr. I know Coca-Cola just raised a few days ago, I think Qualcomm did also.

its definitely a good idea to get into some stable companies paying high dividends (usually its actually because the stock price just dropped) but you should diversify. get a couple of good dividend paying stocks, but also buy a couple of growth stocks.

im also not sure why you cut out all stocks below 10/share. obviously it helps your research by eliminating a bunch of just bad companies, but you may find a diamond in that list. the question i guess is: are you willing to put in the time to search for it. (i can guarantee you that the good investors and the people who do this for a living-the people you are "competing" with are willing to put in the time to do the research on sub 10/share companies)

BE CAREFUL...

Case in hand. HOG for example. Paid didvidends. High 18 months or so ago was priced 48 a share. 6 months later was 7.99.

Still paid dividends, but lost 5/6th VALUE! It has just recently started recovering (and I might add a false recovery)... currently at 27 (which is HALF what it was). and LOWERED their dividend payout...

Buying stocks for dividends (IMHO) is ONLY for long term holdings, in a company you LIKE and want to hold stock in.... and hope you got in at the bottom, or at least at the lowest point before it started a decent climb.

***PS. HOG is a Market Makers stock... they LOVE to manipulate it. $1 daily swing in price is not out of the norm. And the MM manipulate the OPTIONS even more... They are doing it big time right now, shoving the price up for no reason, and can't wait to drive it to 22.50 or 21 by Mar 18/19. But I could be seriously wrong, and it could continue to climb and break the 30 buck mark this coming week. WHO KNOWS THESE DAYS???***

A couple to look at are BP and VZ. They both have >6% right now. I bought some bp when the yield was 9%. Still waiting to get a nice big chunk of VZ - would like to buy at the 28.5 area if it falls to there.

You know there was a post on FWF about Wamu bond paying 44% in yield about a month or so before it was bought by Chase. I'm not sure how much bondholders get out of that deal.

Also, at one time GM common stock paid $0.5/quarter dividend while the price was about $18-19/share. So that's about 10.53% dividend yield.

GOOD LUCK!

I have never heard of a stock being rated "BBB" If that is something that is proprietary to optionsxpress then be doubly careful. Who the hell knows what "BBB" means when they use that phrase. In fact, I can tell you without even knowing, that the "rating" is meaningless and gives not valuable insight into the risk of capital loss.

fleetwoodmac said: One more thing to mention is that you pay income bracket tax on the interest but only %15 flat on dividends.
Remember that, unless Congress extends Bush's tax cuts, the break on qualified dividend payments ends this year. Given how things are going, I don't think an extension is guaranteed. If we don't get one, expect a severe price correction in many high-yield stocks as the after-tax value of dividends suddenly drops.

nycll said: Agency mortgage REITs pay 15+% dividends...
Since OP is thinking about taxes, it's worth pointing out that most of the dividends from mortgage REITs are usually not qualified, and therefore not eligible for the reduced tax rate.

Quovatis said: Both DT and WIN are paying out more than they can really afford... A payout ratio close to (or over) 100% is a red flag.
DT is losing money, so technically their payout ratio is negative, and thus nowhere close to 100%.

At one point I played around with owning some of the top dividend paying stocks on the dow jones average. This website has a nice list of the dividend payouts: http://www.dogsofthedow.com/dogytd.htm
One could argue that these companies are more stable than some of the smaller companies being posted on this thread (this was my thinking a couple of years back), but I am not sure this is really true. A fair number of these companies have lost substantial value in this economic downturn. A few years abck one of the top yielding stocks at one point was GM, which of course went bankrupt. Also GE (previously mentioned) and PFE have lost about 1/2 of their value in the last 2-3 years (both of which I got burned on).

Altria (Maker of Marlboro cigarettes and Copenhagen) is currently yielding 6.75% ($1.40 Div, $20.71 Stock price). It is a stable company with a long history of gradually but steadily raising it's dividend. Also the company tries to keep its dividend payout at 75%-80% of earnings, unlike some companies that payout more than they earn.

TDSAX said: Altria (Maker of Marlboro cigarettes and Copenhagen) is currently yielding 6.75% ($1.40 Div, $20.71 Stock price). It is a stable company with a long history of gradually but steadily raising it's dividend. Also the company tries to keep its dividend payout at 75%-80% of earnings, unlike some companies that payout more than they earn.

Yeah, it's a very good stock and I looked at it too, but I couldn't bring myself to invest in a product that kills and costs everyone else so much money. My conscience is worth more than a fraction of a percent earnings.

TDSAX said: Altria (Maker of Marlboro cigarettes and Copenhagen) is currently yielding 6.75% ($1.40 Div, $20.71 Stock price). It is a stable company with a long history of gradually but steadily raising it's dividend. Also the company tries to keep its dividend payout at 75%-80% of earnings, unlike some companies that payout more than they earn.This is the key thing to remember. As other posters have stated other ways. You "really" have to look at the company as a whole. Of course company reporting is the fine art of obfuscation. Many times companies with high debt loads, poor earnings and difficult near term envirnoments will boost their dividends as a smoke screen to try to hold their stock price.

Also, as has already been said, you can do everything right in researching a company and "still" end up eating a significant stock price loss. The real danger here as in all stock picking is your own ego. Many people will be fairly successful and assume it is because of their great skill. Cosider it like playing blackjack or poker. Skill certainly helps, but there is a HIGH degree of luck invovled.

Quovatis said: TDSAX said: Altria (Maker of Marlboro cigarettes and Copenhagen) is currently yielding 6.75% ($1.40 Div, $20.71 Stock price). It is a stable company with a long history of gradually but steadily raising it's dividend. Also the company tries to keep its dividend payout at 75%-80% of earnings, unlike some companies that payout more than they earn.

Yeah, it's a very good stock and I looked at it too, but I couldn't bring myself to invest in a product that kills and costs everyone else so much money. My conscience is worth more than a fraction of a percent earnings.
I am not so sure it is a good stock. It is not a bad stock, but still it is a stock with downside risks. YOu can get a good high yield bond from decent companies without a lot of default risk.

You guys, everyone has some opinion. But can anyone actually come up with some consistent points that are true across?

1. Owning a dividend paying stock entails price risk. The longer you keep that stock, the longer the price risk,

2. A dividend paying stock is a stock. Stock market up? Your dividend paying stock is mostly up. Stock market down? Same thing.

3. Individual stocks are also subject to idiosyncratic risk. Someone mentioned HOG. Look at HOG chart vs SPX, e.g., 1yr, 2yr, 5yr. That stock is far more volatile than your "average" stock. So why would you own HOG for the dividend? Not worth it.

4. Someone mentioned DVY. Excellent ETF for COMPARISON. Not necessarily owning, but for comparison first.

Everyone, do yourselves a favor, and go to finance.yahoo.com, get an interactive plot for DVY, then add SP500 for comparison, and do 1yr, 2yr, and 5yr plots.

As you can see, DVY will generally move with the market, but not always. For example, for the past 1yr, i.e., from March 5, 2009, DVY has slightly outperformed SP500, and paid 4 40c dividends. That's a good thing, right.

But in the previous year, there were periods when it significantly outperfmed SP500, and significantly underperformed SP500. Why?

Well, in the Summer-fall 2008 period there were a lot of dislocations in the equities, and big players were buying and selling different styles of stocks without the usual investment rational. E.g., they had to liquidate, because they lost money elsewhere, or they had to liquidate because their capital owners asked to cut risk.

So the spread between DVY and SP500 changed dramatically. From mid June 2008 to Sep 22 2008, DVY significantly outperformed SP500, but then until Mar 5 2009, DVY significantly underperformed SP500.

What does that tell you? Well, it should tell you that the price risk underlying the factor that drives DVY can kill the dividend paid 10x!

So, one strategy might be to own 50% SP500 and 50% DVY, and rebalance frequently!

But don't just sit on DVY and hope to always collect the same dividend yield.


5. If you are looking for yield, it is far better to own LQD. Look, LQD is subject to price risk, but to a far lower extent. Sure, LQD reached local lows on Oct 10 2008, and Mar 5, 2009, but look how much less it lost compared to SP500.

Now, LQD truly provides you with a different asset class, unlike DVY.

And LQD pays the average yield of a investment grade corporate bond.

you are better of with taxable muni bond ETF very low risk ( eg build america bond fund yielding 6-7% ) or preferred stock bond fund ( PGX or PFF with yields above 7% )

Linky

invest like her you will be fine. A FWer in every sense of the word

javaman2003 said: Linky

invest like her you will be fine. A FWer in every sense of the word


Amazing story. Thank you for sharing it.

Dividend stocks have to be perceived based on the market environment. During a bull market, holding dividend stocks is unfruitful as the stocks with growth usually display the highest appreciation. During a bear market, holding dividend stocks is again suicidal as the risk is immense in terms of capital loss.
The only environment where holding dividend stocks make sense is a flat market, where the fluctuations are low.

^^^ excellent point.

But if you can predict bull, bear, and flat markets, there are much better ways to make money.

Buy puts or leveraged shorts in bear,
Buy calls or leveraged longs in bull markets,
Sell options on both sides in flat markets.

I bought some GM bonds when they were paying 93%+. I had hoped the government would bail them out, just like the banks.

I did cover myself and sold half my holdings when the bonds went up 150% on the market. I also received 3 payments from the bonds (needed about 4 to break even with my principle). Now they are frozen in illiquidity, but it was a fun ride.

mlayu said: You know there was a post on FWF about Wamu bond paying 44% in yield about a month or so before it was bought by Chase. I'm not sure how much bondholders get out of that deal.

Also, at one time GM common stock paid $0.5/quarter dividend while the price was about $18-19/share. So that's about 10.53% dividend yield.

GOOD LUCK!

javaman2003 said: Linky

invest like her you will be fine. A FWer in every sense of the word


1. Invest in stocks near the bottom of the Great Depression.
2. Don't cash them out for 75 years.
3. Profit.

SnoopDoug said: javaman2003 said: Linky

invest like her you will be fine. A FWer in every sense of the word


1. Invest in stocks near the bottom of the Great Depression.
2. Don't cash them out for 75 years.
3. Profit.


1. Build time machine
2. Follow quoted advice
3. profit

xchange55 said:
Last point; your effective DIV yield is based on what you paid for your shares, not what's posted on some finance web site. You buy 100 shares at $20, and another at $25. A $1/year DIV means your overall yield is 4.44%. If the current share price goes to $30 and shows 3.33% you are doing better. You mentioned DT; if someone paid $25-26 for their shares, then they are really only getting a DIV return rate of ~3.50%.


People should not look at it like that. If a stock pays $1 a year, and the investor bought at $10 they would be getting 10%. If the price goes to $20 they are only getting 5%. You say they should take it at their cost ($10), but in reality, they should look at what they are giving up (oppurtunity cost). If there are other investments out there paying the same $1, but only trading at $10, they should sell the $20 one and buy two of the cheaper. Sure, with your calculations, they are still only earning 10%, but for us in the real world, they would double their income.

SnoopDoug said: javaman2003 said: Linky

invest like her you will be fine. A FWer in every sense of the word


1. Invest in stocks near the bottom of the Great Depression.
2. Don't cash them out for 75 years.
3. Profit.

She invested $180 in 1935 and ended up with $7 MM.

That's over a 15% CAGR (Thank you Excel). That is an amazing (and lucky) return over that many years. If she had a 10% CAGR over that time, her principal at the end would have been like 230K, a huge difference. And, if she got a 7% return, it would have been 29K. Amazing how much of a difference it makes over that time period.

Not sure why this thread was started, but it really has just turned into another stock market thread. The stock market is extremely risky. The rewards are okay. But you never do know if you are going to wind up ahead at the time you need the money. It is that simple. I invest in the market. When I lost a lot of money in financial market meltdown, I was fortunate enough to not also lose my job, which allowed me to continue investing at firesale prices. I could just as easily have been unemployed at the time and as a result, still be licking my wounds from losses instead of preening over the gains I have made.

If you have the stomach for wild gyrations in your investments, and you don't have financial obligations that will make you "stop" investing during down times, then by all means, invest away! If you are going to panic sell every time your portfolio drops 20% then stay away from the market as you'll only get hurt in the long run.

DavidScubadiver said: Not sure why this thread was started, but it really has just turned into another stock market thread. The stock market is extremely risky. The rewards are okay. But you never do know if you are going to wind up ahead at the time you need the money. It is that simple. I invest in the market. When I lost a lot of money in financial market meltdown, I was fortunate enough to not also lose my job, which allowed me to continue investing at firesale prices. I could just as easily have been unemployed at the time and as a result, still be licking my wounds from losses instead of preening over the gains I have made.

If you have the stomach for wild gyrations in your investments, and you don't have financial obligations that will make you "stop" investing during down times, then by all means, invest away! If you are going to panic sell every time your portfolio drops 20% then stay away from the market as you'll only get hurt in the long run.


Could not agree more, follow the invest and forget approach. Act like you will never see the money again but, continue to invest and periodically check your stocks to make sure they remain inline with your goals.

DavidScubadiver said: I have never heard of a stock being rated "BBB" If that is something that is proprietary to optionsxpress then be doubly careful. Who the hell knows what "BBB" means when they use that phrase. In fact, I can tell you without even knowing, that the "rating" is meaningless and gives not valuable insight into the risk of capital loss.

These are bonds that try out unique things for "fun and profit," entertaining some participants while frustrating others.

AT&T..... T, DIV YLD which is currently 6.65%. With more than SIX BILLION in Cash the company's dividend is very safe.

xchange55 said: Someone mentioned mortgage REIT's; they are better for short term play versus long. Once lending rates increase the yields will drop dramatically, along with share price. You have to get in and get out at the right time. Like anything else, it's all about risk versus reward. The yield is higher, but so are the risks.I think the risk of price drop is bit exaggerated. Simple question to ask is if their price will plummet in case rates are up, why haven't they already plummeted? Like I said earlier, these companies' share prices already assume moderate pace of rate hikes. (Look at the yield curve, it is steeply upward sloping. Ergo, everyone knows rates are going up.) So they will do fine (poorly) if actual rates rise slower (faster) than expected.

larry33 said: AT&T..... T, DIV YLD which is currently 6.65%. With more than SIX BILLION in Cash the company's dividend is very safe.

If you are just after yield consider ticker ATT which is the debt portion of At&T. Yields about 7%. The upside is that it does not move around alot. It was basically immune to the 2008 crash as compared to T. Downside is that ATT does not have alot of upside. If the market moves up, it generally lags the common stock. But its a safe place to park money.

SnoopDoug said: javaman2003 said: Linky

invest like her you will be fine. A FWer in every sense of the word


1. Invest in stocks near the bottom of the Great Depression.
2. Don't cash them out for 75 years.
3. Profit.


Invest in drug stocks before the advent of modern medicine.

BostonOne said: javaman2003 said: Linky

invest like her you will be fine. A FWer in every sense of the word


She invested $180 in 1935 and ended up with $7 MM.

That's over a 15% CAGR (Thank you Excel). That is an amazing (and lucky) return over that many years. If she had a 10% CAGR over that time, her principal at the end would have been like 230K, a huge difference. And, if she got a 7% return, it would have been 29K. Amazing how much of a difference it makes over that time period.


I think the CAGR is low estimate. The article says, the gift is worth $7mm and pays a dividend of $300,000 a year.

I think the key takeaway is not that you have to invest in depression. But invest in a good company for a long time and do dividend reinvestment. BTW, sometimes diversification can be diworsification.

refidnasb said:
If you are just after yield consider ticker ATT which is the debt portion of At&T. Yields about 7%. The upside is that it does not move around alot. It was basically immune to the 2008 crash as compared to T. Downside is that ATT does not have alot of upside. If the market moves up, it generally lags the common stock. But its a safe place to park money.


I didn't know about this. Thanks!

Skipping 41 Messages...
Check out diamond offshore (DO). It has been on my watch list for a while but I bought its competition Noble (NE). In today's Barrons an article talked about its 9% yield, including a special dividend it has been paying fairly consistently. Generally high dividend isn't a criteria I use, because I care about total return and I check out the cash flows to make sure the earnings are real. I still think NE is better total return stock, but if you are looking for dividends DO's 9% is hard to beat.



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