Investing Catechism

[nitro]

One argument all of you should be using against my thesis is, that is the reason there are different share classes. For example, most of these companies issue preferreds, where you forgoe growth in the underlying in exchange for a higher dividend. The common in some sense is engineered strictly to price the company in raw.

I don't have a good argument against that, except that companies like AMZN have almost no "preferred shares." I did find one though, EGJ:

http://www.quantumonline.com/ParentCoSearch.cfm?tickersymbol=AMZN

http://finance.yahoo.com/q?s=egj

But it is issued by Citi. LMAO.

 

[riskfreetrading]

Quote from nitro:

One argument all of you should be using against my thesis is, that is the reason there are different share classes.

I disagree. The reason why they issue preferred is when they cannot get funds from selling common or getting loans. Banks did it with sovereign funds last year.

PS: If you want your dividend on a growth there is a simpler way. Write OTM calls.

 

[Madison]

Quote from nitro:

As an investor, find these sorts of stocks, and forget the rest. As a trader, do whatever, just understand one vs the other.

Not paying a dividend is equivalent to management claiming that they can earn a greater return on the dividends than the shareholders can.

In a very few cases it is true; in most cases, they dismally underperform, and it is just a scam to make it easier for managers to pay themselves extraordinary salaries and fly around in private jets at shareholder expense.

 

[spindr0]

Quote from nitro:

Read all my posts. You are missing the other component that makes it a ponzi scheme.

I've read all of your posts in this chain and to repeat, your initial premise is faulty. Stock ownership is not a Ponzi Scheme - nor do I believe that you understand the difference. There are many investments that do not provide an immediate return and are based on the perceived value of the investment rather than a cash flow, eg. the can of tuna you want in your hand today.

 

[spindr0]

Quote from riskfreetrading:

I disagree. The reason why they issue preferred is when they cannot get funds from selling common or getting loans. Banks did it with sovereign funds last year.

Corporations issue preferred stocks for a number of reasons. There are income tax advantages for corporations that are not available to individuals (dividend received deductible). Rating agencies give prds better equity credit than on straight debt. Pfd issuance avoids diluting common shareholders.

 

[sprstpd]

Quote from nitro:

To me, the only thing that matters as an investor is the dividend...

With your line of reasoning, then in a perfect world every stock price would be $0. Because as soon as a company made money, a dividend would be paid, resetting the stock price to $0.

This might be slightly off topic, but this discussion reminds me of Jim Cramer who always talks about getting into high-dividend stocks. I have even heard him say once or twice that people should get in before the dividend is paid. But the dividend comes out of the stock price so there is no free money in the process (unless you are factoring in tax issues). Whenever I hear "you should get into the stock before the dividend is paid", I know I am listening to someone who does not understand what is going on.

In my view, the price of a stock is the market's way of telling us how much of a dividend a company could pay if it decided to. Whether or not it pays the dividend is inconsequential because it could pay it out. Therein lies the value of the company.

Let's look at your WAG example. Why doesn't WAG continually pay dividends to keep its share price at $1 (or some other set price)? Because they are not doing that, it seems (taking your argument to its logical conclusion), that they are not worth investing in.

To me, I could care less about dividends - they get subtracted from the stock price anyway and there IS NO PRACTICAL DIFFERENCE between a dividend paying stock and one that does not pay a dividend.

 

[Topper]

What does all of this have to do with playing the game?

 

[nitro]

This argument is completely false. As a counter example, REITs are required by law to pay out 90% [some less I think] of earnings. Their stock price are hardly constant, and they don't reset to any particular value. And I am not even talking about REITs in this thread, although I recomment investors look at them.

As far as you implying that I am suggesting that one invest in high dividend paying stocks, I never said any such thing. I suggest that you invest in companies that have a strong record of paying a dividend, and that this dividend is not some pultry amount. I gave two examples of stocks, PG and WAG, that have made people lots of money with very little variance, and I gave an example of a company who could easily pay a much higher dividend, but instead hoards cash, MSFT, and one that is ripe for a small dividend but pays zero, AMZN.

I also never said anything about trying to capture a dividend before any date. If a stock is paying you a nice dividend yield, and you believe in the company, you should buy it and look at it once every six months, or on a big spike up or down. This will determine whether you buy more, or temporarily rotate out of it if the yield becomes too low [as I suggest in a previous post], for example, like it is in WAG right now, imo.

Utilies are the preeminent example of dividend paying stocks that don't move very much. Those are ok, too.

Quote from sprstpd:

With your line of reasoning, then in a perfect world every stock price would be $0. Because as soon as a company made money, a dividend would be paid, resetting the stock price to $0.

This might be slightly off topic, but this discussion reminds me of Jim Cramer who always talks about getting into high-dividend stocks. I have even heard him say once or twice that people should get in before the dividend is paid. But the dividend comes out of the stock price so there is no free money in the process (unless you are factoring in tax issues). Whenever I hear "you should get into the stock before the dividend is paid", I know I am listening to someone who does not understand what is going on.

In my view, the price of a stock is the market's way of telling us how much of a dividend a company could pay if it decided to. Whether or not it pays the dividend is inconsequential because it could pay it out. Therein lies the value of the company.

Let's look at your WAG example. Why doesn't WAG continually pay dividends to keep its share price at $1 (or some other set price)? Because they are not doing that, it seems (taking your argument to its logical conclusion), that they are not worth investing in.

To me, I could care less about dividends - they get subtracted from the stock price anyway and there IS NO PRACTICAL DIFFERENCE between a dividend paying stock and one that does not pay a dividend.

 

[nitro]

Quote from spindr0:

Corporations issue preferred stocks for a number of reasons. There are income tax advantages for corporations that are not available to individuals (dividend received deductible). Rating agencies give prds better equity credit than on straight debt. Pfd issuance avoids diluting common shareholders.

I agree. It is not just because they have no other way of raising cash, although it is in some cases, but those cases, with a little digging, are blantantly obvious.

 

[nitro]

Quote from riskfreetrading:

...PS: If you want your dividend on a growth there is a simpler way. Write OTM calls.

This on the other hand, is an extremely interesting suggestion. I have thought about it the whole night. I have to do a little more research, but I will post my thought on it a little later.