A great example of this is Bank of America...prior to 2008-2009 financial crash the stock was worth $45 and a quarterly dividend of $0.64/share per quarter
http://web.tmxmoney.com/charting.php?qm_...
Safe as a church right??? Wrong...by 2009 the stock was worth $5/shares and the quarterly dividend was a whooping $0.01/share/quarter...it still is the same dividend rate today over 5 years later. (hover over the green "D" to see the dividends
So picking stocks simply on its dividend payout is fraught with danger. Companies have many reasons to offer a dividend...especially a high dividend...it could be they have more money than plans for it so they distribute a portion in dividends to investors....it could be that shares or prospects of the company are not that good so they offer a dividend in the hopes of attracting investment. The latter are dangerous for the likes of you since a reduction or cessation of the dividend would cause the share price to plummet and I doubt you would work this out in time to exit the stock if you could.
Dividend stocks are ok for income for retirees, if wisely chosen but it is not something you enter into simply based on the yield of the stock.
You don't think stocks that pay dividends can go down in value or reduce/stop their dividends?
In addition, it doesn't take a rocket scientist to look at the average annual return of growth stocks vs dividend stocks over a long period of time and see which category produces higher returns.
Lastly, dividends are taxable income. Growth stocks are tax deferred until the gain is realized (stocks are sold) and then the gains are taxed at capital gains rates not income rates.
It's a no brainer for someone who is trying to build a nest egg rather than preserve one in retirement.
It depends. The stock market is basically a bartering system. A stock is only worth what a second party is willing to pay for it, which itself is what he/she thinks a third party will later pay for it.
If a company pays a regular dividend, then investors all "expect" a dividend which means they put a higher intrinsic worth on the stock.
This means a seller will sell for a higher price and a buyer will be willing to pay a higher price.
Overall this equals a balance in the stock price which means a dividend paying stock will not increase in price faster than an equally situated non-paying stock.
Fundamentally, a company paying a dividend is basically saying that it has no better use for its cash than to give it to the owners and let them choose how to invest it. In my opinion it's a poor use of cash for many companies.
One advantage of a dividend paying stock is that they are often perceived as less risky. Some investors prefer steady, low-risk returns, therefore seek out dividends moreso than fundamentally undervalued companies.
Because you are actually getting a return on your investment vs traditional stocks where you have to pray the stock goes up and not completely go down, and with dividend stocks if you reinvest each of your dividend payments you could potentially grow beyond your original investment.
