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Wowzie to dividend declines...

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February 22, 2009 – Comments (3)

Well, here's what I was saying about dividends last summer, going against the rant that dividend companies with solid earnings blab, blab, blab...

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.

 And what do we have, $16.6 billion in cuts to dividends this quarter....  I have no idea how close this is or will come to my estimate, but I have yet another correct prediction...

Now, here's something to think about in terms of vanishing valuation.  My sense is that dividends were leveraged in the range of 50 to 100 times in market cap.  I just skimmed the blogs that defended buying dividend stocks where the dividend was like, 1.2% because in 5 years it will be x percent.  So, at 2% that would be 50 times levelage and 1% would be 100 times leverage so say good by to 800 billion to 1.6 trillion of dividend market from these cuts...

Leverage giveth and leverage taketh....

 Hmm, and reading the comments on that last summer blog, whatever happened to Lordz?

3 Comments – Post Your Own

#1) On February 22, 2009 at 5:46 PM, dwot (45.74) wrote:

Other dividend posts...

Historical dividend yields are not future dividend yields...

Dividends will save the economy...

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#2) On February 22, 2009 at 6:24 PM, DarkToast (39.71) wrote:

" Hmm, and reading the comments on that last summer blog, whatever happened to Lordz?"

He got banned for being a jerk.

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#3) On February 22, 2009 at 11:26 PM, SharpSEO (69.07) wrote:

Nice call. I think the REIT industry will be especially interesting to watch (and short) over the next few years.

The era of ever-increasing debt and dividends is almost over, thank god. What a ridiculous business model...

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