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Loss of Dividend Spending

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July 10, 2008 – Comments (11)

I have gone on and on with a highly bearish outlook and repeated stated that for myself the down side risks to the market far out weight potential gains.  There have been some areas that have done fine since I left the market, but I am one with what I call "conservative greed."  My instincts told me to just wait and watch.  They still tell me this market isn't worth the risk.

There was an interesting quote with Marketbeat today:

 

Bennet Sedacca, president of Atlantic Advisors LLC, says at one point he held a position in the preferred shares of the GSEs, eventually selling them for a loss. “We came to the conclusion that the equity holders of Fannie and Freddie will get nothing and preferred holders will not get dividends for years,” he said late Wednesday.

I have no idea how much of the economy is driven by dividends, but I suspect there are a number of seniors who rely on dividends as part of their income.  This is just another area that consumer spending is going to be hurt.

I suspect about 2/3rds of the dividends paid by financial institutions have been from the ponzi-scheme snake-oil nature of the business.  By the time they properly capitalize having 2-3 times as many shares would not surprise me.  That means over the long term dividends are likely to be 10-20% of their peak.  But I also suspect many will have a few years of no dividends.

I suspect overall dividend payouts across all sectors will be 1/3rd to 1/2 as companies end up cutting dividends.

After the crash in the early 2000s there was a lot of information out there that dividend stocks simply did much, much better than the rest of the market.  Personally, I think dividend stocks have been priced relatively higher compared to that period because of all the news and hype that "dividend stocks always do better in a downturn."  So now they have two effects working against them, the over pricing due to the hype about their safety and the recessionary effects that are likely to reduce dividends all over the place.

This is going to hurt a lot of retirement plans...

11 Comments – Post Your Own

#1) On July 10, 2008 at 1:22 PM, LordZ wrote:

DWot it kills me seeing peoples perceived value, when I was a manager and in tough times without a proper staff and with a bad location with another store just one mile down the road with an ideal location.

And when I was outperforming and making over 20 percent pure profit sometimes as much as forty percent, i didnt get much recognition nor any security or thanks. My paycheck I guess was viewed as thanks enough and even than i'm sure my immediate supervisors thought I was getting overpaid for all my sacrafices in time and risk. Than as times got rougher and margins shrank my profit dipped to 16%.

while the company averaged dipped to no profit, yet I wasn't valued, nor did I feel valued.

Its all just perception DWOT

EVEN at 16 or a previous company average of 20 percent.

the company I worked for never paid a dividend, even though they probably easily could have.

why ???

not sure I'm guessing they felt if you really needed the $$ you could than sell your stock and hopefully you would have more money than you previously paid.

Most companies will still continue to profit...........

many companies easily will still be able to afford dividends.

many will in fact increase their profits and dividends.

the upside of the market can never be under or over looked.

as more and more investors become more sophisticated and willing to take risks

I can't see everyone running away

now your potential to make money has never been better.

little risk

little return

but I'll agree that given the huge risks

you had better make sure you get the necessary return.

screw em all

buy

buy

buy

lol

 

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#2) On July 10, 2008 at 2:33 PM, blade5adj (< 20) wrote:

LordZ: That sucks man.  It's crappy when your contributions aren't being valued.  If you ask me though, they were dumb for not encouraging you and recognizing your achievements.  I mean, what would have been there to keep you from jumping ship and going somewhere where you were better appreciated?

I also agree with you that the market always has upsides.  I can assure you DWOT that financials don't work as ponzi schemes, or else loaning out money and underwriting companies would not still be around today.  It's a bear market right now, but just until we over correct ourselves.  DWOT, your pessimism can't continue, because if the market really was complety shot as you seem to be suggesting, no one would invest.  I've always been told: "the difference between investing and gambling is in investing you expect to make money, whereas in gambling, you expect to lose money".  If you were to just buy shares of the S&P 500, you'd return around 10% every year when averaged out.  This does not suggest a bearish trend in general lols

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#3) On July 10, 2008 at 3:15 PM, Imperial1964 (97.87) wrote:

I'll agree with Dwot that this market isn't worth the risk.  But it's getting closer.

S&P 1100 and you'll see me on a buying spree.  I don't care if it's not the bottom!  I can outperform the market anyway.

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#4) On July 10, 2008 at 4:07 PM, abitare (93.63) wrote:

blade5adj,

You do not have any idea, what you are talking about. You do not know your history and should not be investing. The S&P500 is was NET 0% return over the last ten years (ref WSJ Lost Decade). The S&P500 is even lower if valued in gold or silver or oil etc....

The NASDAQ is still down after 8 years. It lost 80% of it's market CAP. The Japanesse real estate, stock market and  currency have been declining for 18 years.

"If you were to just buy shares of the S&P 500, you'd return around 10% every year when averaged out. "

Please show this on a chart in real terms. The US market has significant risk. If there is a war with Iran, the dollar will be in even more trouble.

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#5) On July 10, 2008 at 4:30 PM, dwot (72.69) wrote:

This cracks me up...

I have written in great detail on my reasoning.  It seems to me the stuff that took me hours up hours to research, write-up, break-down and go over in detail was hardly read.

Math has been one of the few things that I have found has always told the truth and the math around what has happened is very scary.

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#6) On July 10, 2008 at 5:14 PM, LordZ wrote:

WHAT are you honestly trying to say ???

what analysis and break down are you talking about ?

Of the stocks that pay dividends, the dividend makes for a nice floor, so long as the dividend is sustainable.

Most people with some dilligence can see based upon financials whether or not such dividends are sustainable.

Personally I like dividend stocks, instead of putting your money in the bank at such low rates, if your lucky you can usually make about double what you could have earned as well as have some appreciation on your share price.

Just be careful, don't put all your eggs in one basket, and don't invest more than you can afford to lose.

Yes people do lose money on stocks.

 

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#7) On July 10, 2008 at 5:17 PM, LordZ wrote:

Today I got the better of the bear... actually took his food

tommorrow when he shows up I'll be waiting...

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#8) On July 10, 2008 at 10:29 PM, JonBarleycorn (71.48) wrote:

Dividends? Hmm.

Isn't that what companies pay when they don't have anything better to do with their profits? lol.

 But, seriously, Ben Graham to the contrary, the value of a company is NOT just the discounted value of future dividends.

I seem to recall from Finance 101 that it is the discounted value of future returns (appreciation + dividends) minus any appropriate risk premium.

So, now you fold in the expected value of all that stuff, bake at 325 for a half hour, add a touch of luck and ... serve.

But I could be wrong.

JB

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#9) On July 11, 2008 at 9:07 PM, lquadland10 (< 20) wrote:

Good going Dwot. I see your point. When 1% of the worlds population makes more than 90% of the worlds population then you have a big!!!!!!!!!!!! problem. I just wonder when people only spend on food shelter and gas to get back and forth to work (or the bus) what will the sellers do? Well they will lay off more jobs and thus the further down turn. Less income for stores and hence dividend cuts. More Foreclosures and more banks closing. Hence Depression not Recession. Just think the CEO's around the country could cure this in 2 weeks. Take a 75% pay cut and spread it to their employees. What a concept. But the Greedy won't do it. I mean why give up 8,000.00 an hour to 2,000.00 an hour. to spread around to the the lowest rung employee making. 6.00 to 20.00 an hour? Just cut more jobs and soon this whole mess might go away. You know it is bad out there when the ileagle immigrants are going home because there is no work out there.

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#10) On July 12, 2008 at 2:59 AM, blade5adj (< 20) wrote:

Abitarecatania, here's your chart.  Cut that off at Oct 2007 from the start, divide the >50% by 4, and lo and behold you get >10%.  I understand that if you invested money in '98, you'd have made no money as of now.  But you're comparing a bull market to a bear market, and in that short of a time frame, of course there's not going to be that great of a return.You've got an energy crisis on top of a credit crisis.  Of course the fall is going to be huge.  But that also means after we figure that stuff out, huge bull market.

Wealth is generated in the long term, and if you're investing for retirement, and you're holding stocks for 20+, the the market does return on average about 10%. If you weren't expecting to make money by investing, why the hell would you even bother buying equity?

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#11) On July 12, 2008 at 7:11 PM, dwot (72.69) wrote:

lquadland10, you remind me of something I read about Ford, the lesson in pay your workers enough so they have money to spend and afford your product.  How many businesses these days are selling a product employees can no longer afford?

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