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Old 11-27-2007, 01:29 AM
Jason Strasser (strassa2) Jason Strasser (strassa2) is offline
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Join Date: Nov 2003
Location: durham
Posts: 4,912
Default Re: 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?

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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.
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