why looking for dividends ?

Discussion in 'Trading' started by luisHK, Sep 26, 2010.

  1. luisHK



    Could you enlighten me on the attraction of stocks paying high dividends ?

    For non US citizens nor residents there is no capital gain taxes but 30% witholding on dividends so the problem with dividends is obvious. In Belgium there is a similar taxation and I suspect in other countries as well although I don't know how it works for US investors.

    But even if you have a similar witholding rate for dividends as for cap gains, what is the interest of dividends that translate once they are paid to a loss in share value almost equivalent to the per share dividend ?

    Than for those faced with this non US resident 30% witholding, does it make sense to sell a position just before the closing time on the ex dividend date than to buy it again the following day ?

    Thanks for all input
  2. Do you mean you do not like 70% of something?
  3. All short term traders lose.
    So you can hold a stock long enough, and you'll receive dividends (real money you can spend), as long as the company doesn't go bankrupt.
  4. Right, adding on to what crgracia said, dividends are paid in cash, to receive capital gains you have to sell the stock. Dividends provide you with actual income. To earn the same amount you would slowly have to sell your stock, making your position smaller and smaller, dividends should increase over time. (If the company is successful)

  5. perr


    Hi All,

    Does anyone have the link for the commodity price board,
    were you place your mouse over the commodity and
    it shows a daily chart.

    The name starts with the letter F and ends with Z.
    Is the name of site.

    Thanks so much for your help.

  6. Because the only things that differentiates an actual stock from a piece of paper you write "stock" on with a magic marker is

    1) disbursements (aka dividends)
    2) voting rights
    3) a guaranteed share of the proceeds in the event that the company is sold

    since most retail investors do not have enough shares to take advantage of 2) and most companies are not about to be sold, in practice 1) is the only thing that makes stock worth owning as an investment. You can own it as a trade, but that's different.
  7. luisHK


    I think I understand your points but i'm still not convinced of the attraction of dividends, particulary if one doesn't need the revenue, and even more if he gets taxed on it.

    Is the following true though :

    " A stock value will go down for almost as much (90% ?) of the dividend value when the dividend is paid ? "

    Besides I read about stocks paying healthy dividends beeing more performant than stocks not paying any, or paying little, which I would consider a more objective advantange. Does that ring true to you ?
  8. LeeD


    Dividend-paying stocks is not everyone's cup of tea. So, maybe they are not the best for your circumstances. If every investor wanted dividend-paying stocks, nearly every stock would pay dividends.

    If you dig in depth, you will notice that stocks that pay high didvidends are usually those of very conservative businesses: utilities, commercial banks etc. They have their share of the market that they cannot easily increase and they have stable revenues. Naturally, they have a little excess cash every year. What do you, as an investor, want them to do with the cash? Do you want them to borrow more and go for a dubious acquisition of an unconnected business? Many investors prefer utilities to stay utilities; not becoem half-utility half-telecom via leveraged buyout; such investors would rather get dividend and invest it themselves.

    This is pretty much in line with what I observed a few years back when I did detailed comparison.

    Again you pay different tax on dividends from, say, US companies.

    Further, tax planning is a large part of investing successfully. For example, if you are selling a part of an equity portfolio, it helps to sell a few stocks at a loss to offset capital gains on other sold stocks. This way capital gains tax on a partfolio as a whole (assuming stocks actually went up) will be delayed and it makes massive difference in the long term.

    Lots of stocks are held in high regard because of the "potential" or the company even though the business may have never made any money. Companies that actually make profit are more likely to pay dividends than those that don't.
  9. luisHK


    Thanks LeeD for your thorough reply !

    Again as a non us citizen nor resident, the dividend is the only part of trading I get taxed on ( we don't have any capital gains witholding, on neither long nor short term gains from sale of securities ) so their announcement is not the best news of the year, but I will keep studying them and trying to find the right allocation of dividend paying stocks and ETFs .

    More input on the topic obviously welcome !