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Excellent Article on Dividends
By JLP | December 4, 2005
The Wall Street Journal’s Jeff Opdyke has written an excellent article (free) on dividend-paying stocks. He said one thing in his article that, although it makes sense, I never really thought about it:
For investors, a key benefit of a dividend (aside from the basic fact that it is cash in hand) is that its presence often buffers a stock against market downdrafts. Academic research has shown that dividend-paying stocks generally don’t fall as far as nondividend-payers when the broader market is declining. That is because the dividend provides a reason for investors to own the shares, rather than bailing out: Basically, they are being paid to hold on to the stock until the market rebounds.
Of course, that all depends on what price you pay for the stock. Still, it’s a great article.
Topics: Investing | 3 Comments »
December 4th, 2005 at 12:31 pm
Another reason for investors to “stick with it” is that (generally) dividend-paying companies tend to have a history of rewarding their stockholders – this is the whole point of dividends, really. This means that these companies are wiser about ensuring their stockholders are happy. In Canada, dividends get preferential tax treatment the same as capital gains, so there is another incentive to own dividend-paying stocks. I’ll guarantee without knowing for sure that the same is true in the U.S.
December 4th, 2005 at 2:03 pm
Of course, the other side of the issue is, if a company’s dividend payout ratio is too high its retained earnings are too low to adequately invest in R & D, new projects, etc. Even successful, mature companies have to reinvest in themselves.
December 5th, 2005 at 11:27 pm
JLP, I remember you had a stock portfolio that you used to track online. Do you still have that? I’m trying to get back into looking at stocks.