Buying stocks with high dividends?
 

I'm a guy who doesn't do any day trading, I guess I'm in it for the relative long run although not true long run (2 years, maybe)? What do you guys think of stocks like C or BAC which right now are projected to have huge (6-7%) dividends? I don't have too much cash to invest, between 5k-20k, depending how many other positions I'm willing to sacrifice. Any clues? What are the chances of the dividends being cut/killed?

Re: Buying stocks with high dividends?
 

Very slim chance Citi cuts its dividend FYI

Re: Buying stocks with high dividends?
 

I have been in OHI, SFL and FRO for quite a while now and they have consistently paid very nice dividends with a capital gain as well.

Check them out but be sure to do your own research.

Re: Buying stocks with high dividends?
 

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I'm a guy who doesn't do any day trading, I guess I'm in it for the relative long run although not true long run (2 years, maybe)? What do you guys think of stocks like C or BAC which right now are projected to have huge (6-7%) dividends? I don't have too much cash to invest, between 5k-20k, depending how many other positions I'm willing to sacrifice. Any clues? What are the chances of the dividends being cut/killed?

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I'm wondering the same thing. Eventually I think many bank stocks are going to get to the point that they are ridiculously cheap (like less than book value) but they aren't there yet. The problem is nobody really knows what's on their balance sheets, and then there are questions about what they have off balance sheet.

I suspect there's going to be a lot more in the way of write offs by banks and their stocks are going to get cheaper. It's hard to know what book value really is for a lot of these companies that have a lot of derivative and subprime exposure. I think I'll probably wait at least a few more months before I do anything.

Re: Buying stocks with high dividends?
 

I agree. Its hard to know if dividends will have to be cut because of the lack of information about what is on the balance sheet. I imagine the banks themselves don't even know the value of some derivatives or CDOs.

Citi made $0.44 cents per share in the most recent quarter. That is less than they paid out in dividends. They had earned about $1 or more per quarter for the previous 8+ quarters. Most of this loss was due to a huge write down in CDO investments. Will the earnings bounce back or are there more write downs to come? Its hard to say. I am watching these banks, but I think it will take another quarter before we know whats going on.

Re: Buying stocks with high dividends?
 

An index fund will have much lower volatility (and hence better risk-adjusted returns) than individual stocks. WisdomTree has some dividend-weighted ETFs that may interest you. Be aware that high dividends make investments less tax efficient. On the flip side though, dividend yield is a weak part of value, and you can expect slightly higher returns and volatility from stocks with higher dividends.

Re: Buying stocks with high dividends?
 

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I agree. Its hard to know if dividends will have to be cut because of the lack of information about what is on the balance sheet. I imagine the banks themselves don't even know the value of some derivatives or CDOs.

Citi made $0.44 cents per share in the most recent quarter. That is less than they paid out in dividends. They had earned about $1 or more per quarter for the previous 8+ quarters. Most of this loss was due to a huge write down in CDO investments. Will the earnings bounce back or are there more write downs to come? Its hard to say. I am watching these banks, but I think it will take another quarter before we know whats going on.

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They won't cut dividends unless they have to, because they know they are dead meat if they do. Countrywide paid their last dividend, for crying out loud.

BTW, I think more write-downs are coming. Big ones.

Re: Buying stocks with high dividends?
 

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They won't cut dividends unless they have to, because they know they are dead meat if they do.

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Not necessarily. I've seen divi cuts received well in the past. GM comes to mind as one of many examples. Also too, divy cuts are very often anticipated. Surprise divy cuts aren't received so well. Don't know what the sentiment is on C.

A quick note, in theory stocks that pay dividends aren't any more valuable than stocks that don't. The decision to pay a dividend and how much to pay is not an easy question for companys to answer. Some stocks are required to pay dividends such as REITs in order to maintain their tax status.

Re: Buying stocks with high dividends?
 

ive heard UBS is the least likely to cut their dividend and i think buffet is accumulating, it also got hit the least out of these beat up bank stocks, dont listen to me though i am new to stocks

Re: Buying stocks with high dividends?
 

If you want high dividends then invest in MLPs.

Re: Buying stocks with high dividends?
 

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I agree. Its hard to know if dividends will have to be cut because of the lack of information about what is on the balance sheet. I imagine the banks themselves don't even know the value of some derivatives or CDOs.

Citi made $0.44 cents per share in the most recent quarter. That is less than they paid out in dividends. They had earned about $1 or more per quarter for the previous 8+ quarters. Most of this loss was due to a huge write down in CDO investments. Will the earnings bounce back or are there more write downs to come? Its hard to say. I am watching these banks, but I think it will take another quarter before we know whats going on.

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They won't cut dividends unless they have to, because they know they are dead meat if they do. Countrywide paid their last dividend, for crying out loud.

BTW, I think more write-downs are coming. Big ones.

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And right now, the market is saying that they'll have to.

Re: Buying stocks with high dividends?
 

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They won't cut dividends unless they have to, because they know they are dead meat if they do.

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Not necessarily. I've seen divi cuts received well in the past. GM comes to mind as one of many examples. Also too, divy cuts are very often anticipated. Surprise divy cuts aren't received so well. Don't know what the sentiment is on C.

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That was in the past, not right now. And not a financial.

All the financials are under pressure right now, and a dividend cut or suspension by C would be headline news.

Re: Buying stocks with high dividends?
 

You can't pick stocks by dividend yield alone. Above-normal dividends are often a red flag for a company in distress. Studies have consistently shown that you will earn higher long-term returns by avoiding risky stocks with overly high dividends.

Re: Buying stocks with high dividends?
 

Dividends are what people use to console themselves when their stock tanks, "But it pays a good dividend!" Of course, your net worth is much less, even with the dividend, and there's always the possibility of the div being cut.

Re: Buying stocks with high dividends?
 

Why not just buy a few utilities, or utilities ETFs? I think if you plan on holding for only 2 yrs, you want less volatility. Anything in the financial sector would be pretty dumb imo.

BTW: for poor saps like me, in the 10-15% tax bracket, you won't have to pay any taxes on cap gains or dividends from 2008 to 2010. ship it

Re: Buying stocks with high dividends?
 

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ive heard UBS is the least likely to cut their dividend and i think buffet is accumulating, it also got hit the least out of these beat up bank stocks, dont listen to me though i am new to stocks

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You mean USB not UBS.

Re: Buying stocks with high dividends?
 

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Why not just buy a few utilities, or utilities ETFs? I think if you plan on holding for only 2 yrs, you want less volatility. Anything in the financial sector would be pretty dumb imo.

BTW: for poor saps like me, in the 10-15% tax bracket, you won't have to pay any taxes on cap gains or dividends from 2008 to 2010. ship it

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If you want an ETF there are several good high yielding ETFs like DVYor SDY or the Wisdom Tree ones that are pretty well diversified although they all have a significant chunk of money in bank stocks. Or, there are bank ETFs and closed end funds that you can buy once most of the carnage is over if you don't feel comfortable buying individual stocks. Personally, I would rather just research and buy a few good bank stocks than a fund, but that's what works for me. YMMV.

Re: Buying stocks with high dividends?
 

haha yea usb, thats why i suck at stocks cant even get the symbols right

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All the tanker stocks (FRO, VLCCF, ect..) have been doing well recently and have consistently paid very high div's (8 - 30%).

Re: Buying stocks with high dividends?
 

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Very slim chance Citi cuts its dividend FYI

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the option market might disagree with you.

dividend = stock - strike + interest + put - call

check out the atm jan 09 options and you will see that there is a pretty severe expected decline in dvd payments.... im not saying it will happen, but its priced into the option market so if you are thinkning that citi will not cut dividend i recommend buying puts selling calls and buying stock (a conversion).

Re: Buying stocks with high dividends?
 

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I'm a guy who doesn't do any day trading, I guess I'm in it for the relative long run although not true long run (2 years, maybe)? What do you guys think of stocks like C or BAC which right now are projected to have huge (6-7%) dividends? I don't have too much cash to invest, between 5k-20k, depending how many other positions I'm willing to sacrifice. Any clues? What are the chances of the dividends being cut/killed?

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dividends are so completely misunderstood it is downright scary. say you decide to re-invest all your dividends and buy back the stock you get... then the dividend rate is irrelevant to you...

say $100 stock, $5 dividend. Stock has to trade down $5 after it goes ex-div otherwise there is obvious arb opportunity (buy before it goes ex-div, collect div, sell after ex-div). So stock goes to $95 and you use the $5 to buy 1/19th of a share. So now you have 20/19th of a $95 stock vs 1 share of a $100 stock which is the same....

Now if you take the cash from the dividend you have the choice to not re-invest it and put it to work somewhere else. The company is merely giving you the chance to do something with its profit instead of re-investing the capital back into its company.

There are obviously benefits to companies sitting on tons of cash who think that they are better off paying their shareholders than re-investing capital, but dont be stupid and just hunt for big dividend payers thinking that you are some savy investor.