----------------------------------------------------------------------------------- Ok, I say guarantee before in my post, but the word guarantee is for in present time. The dividend is positive cash in the present time. Always positive in the cash received. First I think nitro is never saying to the people to buy any stock with the dividend is good. No. He is not stupid to think that. I think he is saying the dividend stock is givng the return to the investor in the real time. Not in the future time for hope of higher stock price to sell.
Okay here's an attempt from someone who hasn't taken finance 101: when you buy something, anything, you would do some research to make sure you are not overpaying for it, and ideally you would like to find a bargain, i.e., pay less for what you perceive as the value of the thing you are buying. For example, when shopping for a car, you first would look into the specs and features of a car: 4 door, 2 door, 4 cylinder 6 cylinder, 2 liter 5 liter, leather seats etc. Then you would consider other things like re-sale value: You know that certain brands tend to re-sell higher than others. Then finally you might even consider the potential costs to maintain and operate the car, i.e., how often do you need to service and fix it, and what is the gas mileage. Then you would shop around to get the best price on the car you want which depends on the specs and features, maintenance cost, and resale value of the car. So now you are shopping to buy a company. Not a whole company, but just a tiny share of it. But you are still paying your hard-earned cash to buy a piece of it. So you want to make sure you are not overpaying for it. Better yet, you want to actually find a company that you believe is a bargain, i.e., is selling for less than what you think the value of the "features and specs" of the company. Some of those specs include the amount of assets it has, the revenue it generates each quarter, and the amount of debt it has. Moreover, you realize that some companies have certain features and specs and a reputation / management team that make them likely to have higher "resale value" in the future, but unlike cars, you can even expect appreciation in value. So you would spend even more time worrying about "resale value" than in the case of cars. Finally instead of paying regular maintenance costs for a car, buying a company allows you to have a positive cash flow (aka dividends) each quarter. So you would also weigh that heavily into your decision. So after all this analysis, you finally find a company that you think is selling for a bargain and you buy it. Then all of a sudden, one of the features of the company actually gets better than the time you bought it, e.g., it's revenue increased by 20% this quarter. So anybody who is now planning to purchase this company will be willing to pay even more for this company than the price you paid, because it has better specs than the time you paid for it. So the price will rise, and you will have an unrealized gain in your pocket. Okay, so you might argue, why does anything other than the positive cash flow influence an investor's decision to buy or sell the company? Well, that I believe is because ultimately there is a finite probability that either (1) the whole company could get bought out by another company, or (2) the company could go bankrupt. If the company gets bought out, then the acquirer will have to figure out the value of the company it is buying because it obviously doesn't want to overpay for it and would like a bargain. In that analysis, the acquirer will also plan for the worst case scenario, what if this company stops making money and starts losing money -- will I be able to "liquidate" and get back at least some of the cash I am paying now? This is where assets and debt come into play. So in the end all of those things on a company's balance sheet and cash-flow statements determine the value of the company and therefore the price of the stock.
"Corporate America may be getting ready to share a bigger chunk of its record profits with investors, who lately have been getting a record-low piece of the pie..." http://www.cnbc.com/id/46367793 To me this shows just how shrewd these people are. Sure, now that the market has risen and taking stock prices up with it, they will raise the dividend. But wait, the risk in capturing that dividend has to be a function of stock price, at least indirectly: Risk(capture div of S at time t) = f(price of S at time t) Did the stock market give the companies the confidence to raise the dividend, or did the companies signal the stock market to anticipate they would eventually raise the dividend? Interesting chicken and egg... So, the question arises, should we chase these dividends? I suspect there is more stock risk than the dividend yield warrants at this particular point in time. So, the people that get rewarded are the ones that already entered the market on the hope (anticipation of) that the dividend streams would be forthcoming. Hmmm....If indeed this happens, it will be worth understanding and breaking down as much of the different time series to gain insight, in particular, the lag.
Another interesting thing to consider is, take the last times the SPX has been at 1350, and normalizing for the dollar (e.g., in gold terms) at each of those times, compare the dividend yield of the SP500 is at each of these times. I suspect that even if they are raised, normalized in gold terms the current DY is pathetic. In addition, the spread between the five year note (and maybe other terms) should also be compared to DYs at each historical data point. This may be the true metric by which companies pay out, not in absolute terms, but in relation to bond yields - companies sell corporate bonds (which are in competition from the government also trying to borrow money) to borrow money, and then use that money to leverage profits from the business, some of which gets turned into a dividend.
Update on Yellow Media ( YLO ), one of the highest yielding stocks on the TSX until they cut their dividend late last year. Price one year ago : $6.01 Price two years ago : $5.43 Price today : $0.125
Futures Lower; Apple Announces Dividend http://www.cnbc.com/id/46781408 http://www.cnbc.com/id/46780594
<div><object width="576" height="324"><param name="movie" value="http://d.yimg.com/nl/techticker/breakout/player.swf"></param><param name="flashVars" value="browseCarouselUI=show&vid=29450255&"></param><param name="allowfullscreen" value="true"></param><param name="wmode" value="transparent"></param><embed width="576" height="324" allowFullScreen="true" src="http://d.yimg.com/nl/techticker/breakout/player.swf" type="application/x-shockwave-flash" flashvars="browseCarouselUI=show&vid=29450255&"></embed></object></div>