Simple Dividends Question

[bills217]

Is there value to be had in hopping in and out of stocks that pay decent dividends so as to only be in them on the days they pay them? This is an area of trading I know nothing about.

It seems like stocks would be more overvalued during these periods, but aren't some dividends high enough to be worth hopping in to get and then hopping right back out? Especially if you pay low/zero commissions? Any thoughts appreciated.

[Jimbo]

To keep the answer simple in line with your post title: The stock price decreases by the amount of the dividend.

Jimbo

[bills217]

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To keep the answer simple in line with your post title: The stock price decreases by the amount of the dividend.

Jimbo

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Makes sense. So if this is the case, then why does any give a [censored] about whether the stock pays a dividend or not?

[ahnuld]

because its our (the real owners) money and by giving dividends we can do what we want with it.

Accoring to academia though, dividend policy doesnt matter.

[Chrisman886]

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[ QUOTE ]
To keep the answer simple in line with your post title: The stock price decreases by the amount of the dividend.

Jimbo

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Makes sense. So if this is the case, then why does any give a [censored] about whether the stock pays a dividend or not?

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Divs are taxed differently, plus they can provide a sort of residual payment similar to a bond coupon payment if you are income driven and they are distributed on a regular basis. One may elect to keep a stock for a longer time so they can sell at a long-term tax rate and get the residual income of the dividend also at a tax rate lower than short-term capital gains.

If you don't care about any of that, it doesn't really make too much of a difference.

[spider]

Once a company starts paying a dividend, it looks bad to cut the dividend later (generally companies keep a stable to rising dividend). So investors will often tend to view the dividend as something of a lower bound on earnings.

But this probably made more sense to focus on in the old days of 5% dividend yields or whatever. Nowadays, even for companies that offer a dividend, it's often really small (MSFT for example).

REITs would be the most obvious exception, as they are required to have dividends equal to some percent (90%?) of earnings or something like that.

Anyway, that's a semi-standard explanation for caring about dividends but personally I don't care about dividends except that tax-wise they are treated less favorably than capital gains.

[SlowHabit]

WM's dividends is currently 6.3%

[spider]

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WM's dividends is currently 6.3%

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Good example. If you think WaMu can maintain this dividend and grow the business, this is a screaming buy when you compare to treasuries at under 5% and no growth potential.

But usu when you find a div yield this high, it's because there are serious concerns the company won't be able to maintain the dividend. I don't know much about WaMu but there is quite a bit of uncertainty in their industry right now!

[pig4bill]

Yeah, WaMu is thought to have a lot of non-prime mortgage exposure.

[bills217]

[ QUOTE ]
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WM's dividends is currently 6.3%

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Good example. If you think WaMu can maintain this dividend and grow the business, this is a screaming buy when you compare to treasuries at under 5% and no growth potential.

But usu when you find a div yield this high, it's because there are serious concerns the company won't be able to maintain the dividend. I don't know much about WaMu but there is quite a bit of uncertainty in their industry right now!

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But if the stock price will just drop by the amount of the dividend, then doesn't that offset the 6.3% gain? How do we benefit? If we wanted cash, couldn't we just sell some of the stock before the dividend?

Sorry to be so obtuse but I just don't understand. [img]/images/graemlins/confused.gif[/img]