1. Your Questions About Stocks That Pay Dividends
Lisa asks…
Why do some investors invest primarily in stocks that pay notable
dividends, but others minimal or no dividend
I am trying to review and determine that implications, positive and negative, of investing in
dividend paying stock versus stocks paying minimal or no dividends
Steve Winston answers:
Some people invest in dividend paying stocks because they are looking for current regular
income. A good example might be someone that's retired and needs the dividend income for
living expenses.
Stocks that pay little or no dividends are using all of their profits to reinvest in the business. If it's
a good company, that means the company will likely grow faster than it would if it was using a
lot of its profits to pay dividends and the price of the stock will go up more. The people that buy
that type of stock are those that do not need current income but are looking for an investment
that will grow in value.
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2. Linda asks…
If dividends are certain, why don't everyone invest in stocks that
pay dividends? What are the risks?
For instance, IVR pays healthy dividends every quarter. What is stopping the big guns
investing heavily in IVR? I am just learning this game, please help me understand.
Steve Winston answers:
Stocks like IVR are a problem for amateur investing because they aren't traditional corporations
producing a product or a service and then paying out a dividend from earnings. Hence
comments like "Companies that pay high dividends have flat revenue growth" just don't make
sense in this context.
IVR is a mortgage REIT (mREIT). REIT's have to pay out at least 90% of their revenue as
dividends or they lose their status as REIT's and get taxed at the corporate level (which would
destroy them as other REIT's don't pay this tax). Thus, an mREIT can't reinvest dividends into
the business and grow the business unlike traditional companies.
The business of mREIT's is to borrow money and buy mortgage backed-securities. The huge
dividends that you see are the result of the difference between the REIT's borrowing expenses
and the yield on the MBS. There is no trick to this - MBS rely on people's abilities to pay their
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3. mortgages and that's suspect right now so yields are high and borrowing costs are really cheap.
The downside is that the mREIT is making a big bet on mortgages. As the mortgage market
looks more and more shaky because economic conditions deteriorate, the MBS in their portfolio
lose value which is why the stock value has slid so much this year. There is no free lunch. MBS
pay high coupons because their credit quality or cash flows are suspect. As there are problems
with the securities the value of the stock goes down. Thus you can get a 25% dividend
(because as a REIT they have to pay it) and get a 30% decline in the value of the stock which
means the dividend didn't help you that much.
There are some questions about IVR in particular that make it offer a very high dividend. If you
like mREIT's I recommend the guaranteed ones like AGNC and NLY that seem to be aa little
more solid than IVR.
I also think that if you are simply looking at one number about a stock such as dividend yield
and thinking you should buy the stock, that you are not yet ready to buy any stocks. Every stock
has a story and you need to start by understanding the company's fundamental business model
and then deciding if that's something you want to invest in. Before you invest in mREIT's you
need to decide if leveraged investing in mortgage backed securities is something you want to
do.
Donald asks…
When holding short sale stocks that pay dividends, how are
dividends-charged reflected on IRS tax return?
These short sale dividends that are charged to your account during the year, somehow should
be reflected as a "benefit" for federal tax purposes. If I'm being taxed on dividends received /
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4. credited regarding long stock holdings, I wouild think the opposite would hold true. I just don't
where to reflect on the proper tax form. Also, how would they be handled for New Jersey tax
purposes?
Steve Winston answers:
Get Real: Use the real numbers when doing financial transactions and the confusion will end. If
a stock is not out right purchased, the price maybe adjusted for dividends. In this case the profit
is adjusted based on the contract closing price. The actual figures are the ones to use for taxes.
Donna asks…
How do I find stocks that pay dividends on a specified date?
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5. Steve Winston answers:
Check www.ft.com u'll get ur answer
Richard asks…
How do I find stocks that pay exceptionally high dividends?
I'm looking for stocks that pay a dividend in excess of 15% (I've had them as high as 24%, so I
know they exist). Of course, I want this dividend to be paid from profit, instead of the business
taking out a loan for it.
I am NOT INTERESTED in buying a stock with the intention of selling it. My interest is income. I
want to buy the stock, and be able to retire on the dividends... with enough shares, that is.
Got any ideas?
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6. Steve Winston answers:
You're considering a very risky strategy for your investments. Dividends can be volatile if a
company has financial problems and need to cut them right away. This is a two edge sword.
Whne the dividends are cut, investors scare and sell and the price of the stock drops like a
rock.
What you should be looking for is dividend consitency and rate of growth of dividends. Telechart
can screen for this and many other criteria that the investor is interested in.
Just for you, I have screened over 8000 stocks with dividends paying>10% and have been
growing at an average 5 year rate of 15%. Here they are...
AHM
BPT
BRT
FRO
HSVLY
MONM
NAT
NFI
PWI
PVX
UBMT
---
Ruth asks…
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7. What are some large cap stocks that pay high dividends that are
good for the long term?
Im getting about $1200.00 and instead of spending it i want to invest it. Im going to college to
achieve my MBA and become a fund analyst or a stock analyst. Eventually when i gather
enough capital i will become a self employed investor. Im just looking for stocks with good
dividends, to keep in their for years about 4-6 years.
Steve Winston answers:
You can visit the Dividend Detective http://www.dividenddetective.com/ for a list of dividend
payers but you will have to weed out the large caps,
Also another site that will be helpful for you is Winning Investments
http://www.winninginvesting.com/
However to get a better feel for investing you should visit, on a daily basis
http://moneycentral.msn.com/home.asp but here are other sites that you will find helpful, not
only for investing but also for your education
http://www.investors.com/?tn=top
http://www.thestreet.com
http://www.brokerage101.com/
http://www.1source4stocks.com/
http://www.grahaminvestor.com/
http://www.morningstar.com/
Good luck on your journey
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8. Lizzie asks…
Is it true that US stocks pay very low dividends?
If so what is the ultimate point in buying them?
Thanks Alexwass.., (and everyone else!) but if it doesn't pay dividends and people are only
buying it to sell it higher to someone else later, ....isn't that what happened with the tulip bulbs in
Amsterdam three hundred years ago???
Steve Winston answers:
The primary way people make money on the stock market is by trading stocks - buying low and
selling high. Companies try to create "shareholder value" by creating earnings growth. This
doesn't mean continuing to earn money, it means that the business tries to continually grow.
Investors reward growth by increasing demand (subsequently increasing the price) of stocks.
Many US stocks have never paid dividends at all.
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9. Mandy asks…
looking 4 recommendations for a mutual fund/ETF that consisted
of large cap value stocks that pay dividends.?
Ideally it would accumulate dividends. looking for a value type group for longer term
investment.
Steve Winston answers:
The best dividend mutual fund is by far PRBLX. It sticks to a strict dividend focus and has great
returns. Check out the links below for more information:
http://quicktake.morningstar.com/FundNet/TotalReturns.aspx?Country=USA&Symbol=PRBLX
http://www.geocities.com/kenandkindi
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10. George asks…
what stocks pay high dividends?
What are some stocks that pay high dividends?
Steve Winston answers:
General Electric
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