07-24-2023, 09:20 PM
Moving on to the next point ...
Companies that pay large dividends are often very similar. These companies share very similar characteristics with one another. When your portfolio is loaded up with dividend stocks you are likely to be far less diversified than you should be.
Who said anything about and what are large dividends? The questioner didn't mention it.
Is it large as in dollars per share? Blackrock pays out $20.00/share yet yield is about 2.6%. Broadcom pays over $18/share but their yield is a hair over 2%. Those are pretty big dollar amounts but so is the share price.
Or is it large by yield? Arbor Realty pays at a 10% rate, PetMed Express at 8.7%, Verizon at 7.7%. They don't seem to be the same type of company to me. One's a REIT, one is a specialty retail and Verizon is a telecom.
Or can he be talking about cash flow, payout ratio, return on equity (ROE)? He doesn't explain what he means by his opaque statement.
What I think he's implying is that they all are or could be slow growers that arguably won't keep up with inflation and find it difficult to grow the business. That could be true.
What he neglected to say, to again point you to the all-knowing financial advisor, is what if you diversify? <gasp> I own Verizon (VZ) and I'm under no spell or ignorant. VZ is my piggy bank. It keeps pumping cash into the portfolio to fund purchases in other companies that can provide more growth or to add to my cash stream. I'll occasionally reinvest a quarter's dividend to give it a little bump and then back to collecting more cash. Once I retire, part of those dividends will put foldable money in my pocket and help with the RMD payment. I also own 33 other companies that continue to give me money at different rates from less than 1% to over 7% even though I don't need it yet. Some gets reinvested, some gets funneled into new positions. Some companies get sold and the money moved someplace else. I've had my share of clinkers but overall, the DGI approach seems to have worked for me. If doesn't work for you, then find something else that matches your temperment to meet your goals ... or to pay for your $40,000 loan balance.
Dividends aren’t guaranteed. Companies must have earnings to pay dividends, which they can stop.
Yup, true fact. That's why you do a little research and diversify. Keep the payout reasonable for the most part. Make sure free cash flow amply covers the dividend. Watch the debt load. Are sales increasing? Know what industry it's in and what financial metrics and issues face the competitors.
Let's also look at the "hometown" banks. You can't trust that they'll keep paying interest at a reasonable rate either. Just ask the depositors of Silicon Valley Bank. In my own case, I have two credit unions I use for my retail banking (special circumstance, don't ask). One pays 0.05% on a deposit savings account, the other 0.25%. This after a year of the Fed raising the Fed Funds rate to over 5%. Even their CDs don't measure up. One pays at a graduated rate up to 3% for a 5 year certificate, the other has all their certificates yielding less than 1%. I've since moved all my cash except the emergency funds to my taxable brokerage account where 3, 6 and 9 month T-bills all are paying around 5.5% and the 1 year around 5%.
Of course, the questioner could have an immediate return if he used the money to pay off the auto loan. Who invests that much (and probably much higher) in a depreciating asset? Then again, if I could afford a Rolls or Bentley, I might be asking the same question.
Sorry to be so long-winded. The SmartAsset site and their constant haranguing about going to a financial advisor for seemingly simple questions really gets under my skin. I wish they'd stop stuffing Yahoo! Finance with their half-truth and opaque question and answer articles.
All the usual disclaimers apply: I'm not a professional money manager, the future ain't like the past, there's no guarantees, etc., etc., etc.
I hope that answers some of your questions, Ken.
Companies that pay large dividends are often very similar. These companies share very similar characteristics with one another. When your portfolio is loaded up with dividend stocks you are likely to be far less diversified than you should be.
Who said anything about and what are large dividends? The questioner didn't mention it.
Is it large as in dollars per share? Blackrock pays out $20.00/share yet yield is about 2.6%. Broadcom pays over $18/share but their yield is a hair over 2%. Those are pretty big dollar amounts but so is the share price.
Or is it large by yield? Arbor Realty pays at a 10% rate, PetMed Express at 8.7%, Verizon at 7.7%. They don't seem to be the same type of company to me. One's a REIT, one is a specialty retail and Verizon is a telecom.
Or can he be talking about cash flow, payout ratio, return on equity (ROE)? He doesn't explain what he means by his opaque statement.
What I think he's implying is that they all are or could be slow growers that arguably won't keep up with inflation and find it difficult to grow the business. That could be true.
What he neglected to say, to again point you to the all-knowing financial advisor, is what if you diversify? <gasp> I own Verizon (VZ) and I'm under no spell or ignorant. VZ is my piggy bank. It keeps pumping cash into the portfolio to fund purchases in other companies that can provide more growth or to add to my cash stream. I'll occasionally reinvest a quarter's dividend to give it a little bump and then back to collecting more cash. Once I retire, part of those dividends will put foldable money in my pocket and help with the RMD payment. I also own 33 other companies that continue to give me money at different rates from less than 1% to over 7% even though I don't need it yet. Some gets reinvested, some gets funneled into new positions. Some companies get sold and the money moved someplace else. I've had my share of clinkers but overall, the DGI approach seems to have worked for me. If doesn't work for you, then find something else that matches your temperment to meet your goals ... or to pay for your $40,000 loan balance.
Dividends aren’t guaranteed. Companies must have earnings to pay dividends, which they can stop.
Yup, true fact. That's why you do a little research and diversify. Keep the payout reasonable for the most part. Make sure free cash flow amply covers the dividend. Watch the debt load. Are sales increasing? Know what industry it's in and what financial metrics and issues face the competitors.
Let's also look at the "hometown" banks. You can't trust that they'll keep paying interest at a reasonable rate either. Just ask the depositors of Silicon Valley Bank. In my own case, I have two credit unions I use for my retail banking (special circumstance, don't ask). One pays 0.05% on a deposit savings account, the other 0.25%. This after a year of the Fed raising the Fed Funds rate to over 5%. Even their CDs don't measure up. One pays at a graduated rate up to 3% for a 5 year certificate, the other has all their certificates yielding less than 1%. I've since moved all my cash except the emergency funds to my taxable brokerage account where 3, 6 and 9 month T-bills all are paying around 5.5% and the 1 year around 5%.
Of course, the questioner could have an immediate return if he used the money to pay off the auto loan. Who invests that much (and probably much higher) in a depreciating asset? Then again, if I could afford a Rolls or Bentley, I might be asking the same question.
Sorry to be so long-winded. The SmartAsset site and their constant haranguing about going to a financial advisor for seemingly simple questions really gets under my skin. I wish they'd stop stuffing Yahoo! Finance with their half-truth and opaque question and answer articles.
All the usual disclaimers apply: I'm not a professional money manager, the future ain't like the past, there's no guarantees, etc., etc., etc.
I hope that answers some of your questions, Ken.
=====
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan