I don't get the Dividend Game :-)

[The_Krakenite]

Dividend stocks are something I like to keep my eye on. Because when the dividend is cut/slashed, watch the retailing dividend-chasers drop & run. Those stonks go on fire-sales at those times.

I would also like to nominate GM in particular for its great dividend shenanigans. Taking out massive loans while in massive debt, only to keep paying dividends to shareholders with those loans when there is no possibility to even re-pay the loans back.

And then... asking the US tax-payer to bail out all its debts. What a great use of dividends!

 

[NorgateData]

Enron could not + did not pay out dividends.

Actually, Enron had regular quarterly dividends. They declared and paid out a regular quarterly dividend from March 1950 to August 2001 (and probably earlier - I don't have data prior to this). The dividend _amount_ was fairly consistent but the dividend yield diminished since the late 1980s. See the chart below.

(This chart does not include the segement where they go bankrupt - obviously dividend yields don't work in that time because they stopped paying dividends....)

 

[M.W.]

That's a very location specific view point. Many jurisdictions do not tax advantage dividends. Hence my thought that he asked a legitimate questions. Think about when you were a beginner in this space. Could you have answered that question if someone woke you at 3am at night and asked you?

They are an income generating asset that is tax advantaged...

I think the fallacy is employing a short term poor/middle class mindset to something which is better for a longer term mindset that really suits the wealthy class.

 

[M.W.]

That question only plays to market internals and the company specific management and profitability. Many dividend stocks indeed go nowhere. Look at mature utilities. They pay out a dividend and the stock adjusts and over time remains almost unchanged. In the absence of investment opportunities paying out dividends is all a company can prudently do.

So, the net effect is purely the paid out dividend, basically the profit the company generates but does not reinvest.

I will let you figure out the answer to your own question but posing another question -- If the market cap drops after each dividend payout, why doesn't the stock price of all dividend paying stocks eventually go to zero?

 

[earth_imperator]

That question only plays to market internals and the company specific management and profitability. Many dividend stocks indeed go nowhere. Look at mature utilities. They pay out a dividend and the stock adjusts and over time remains almost unchanged. In the absence of investment opportunities paying out dividends is all a company can prudently do.

So, the net effect is purely the paid out dividend, basically the profit the company generates but does not reinvest.

Well said. IMO, this means such dividend paying companies are idiots who don't know how to re-invest the capital for making more profit, for example by expanding.

 

[David's faith]

It is way more interesting to play the option wheel when owning the stock. Dividends are just a gimmy and always priced in because profits are some sort of predictable if you are an instituition with an army of analysts and other tools like credit card data.

 

[The_Krakenite]

Ahh yes, the Option Wheel Strategy. That... flawed notion of some sort of self-perpetual income machine, where you can basically get easy-peasy money and for some reason... only Millennials on Youtube seem to know how to truly harvest this. Institutions just 'don't get it."

It cracks me up when I see these people talking about making your own dividend by using covered calls, and preaching as though it is some sort of free-lunch.

In the end, it's a zero-sum game. The other end of the deal doesn't have any less chance of winning than you do, unless the contracts are mis-priced. In fact, it's even worse than that, because of the VIG, you both lose if the contracts are fairly priced.

 

[blink18]

Let's say a company pays out 5% dividend p.a. and I own the stock and get that dividend paid out into my trading account. But: when such a dividend payment is made, then the stock price obviously has to fall that same amount in percent, ie. 5%, since it has to be paid from the market capitalization of the company. Ie. my stock loses the same amount I earn as dividend, ie. a ZeroSum Game.
So then where is any benefit or advantage, or even logic, if any, in this IMO stoopid "Dividend Game"?

Yes, it's stupid. That's why Berkshire Hathaway doesn't have dividends, said Warren Buffett.

 

[newwurldmn]

Yes, it's stupid. That's why Berkshire Hathaway doesn't have dividends, said Warren Buffett.

he doesn’t pay dividends because he feels he’s the best steward of his company’s cash. He’s an investor so it would be odd if he didn’t feel that way.

 

[M.W.]

That's exactly what the person you quoted said, you doofus. And as you can see there are many corporations' CEOs who do decide to pay out dividends. Even CEOs who operate similar conglomerates like Berkshire.

he doesn’t pay dividends because he feels he’s the best steward of his company’s cash. He’s an investor so it would be odd if he didn’t feel that way.