7 myths about dividend-paying stocks

These investments may not have the diversification, safety or payoff you expect. Educate yourself before assuming yields are the be-all and end-all.

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VIDEO ON MSN MONEY

69Comments
Apr 15, 2014 9:28PM
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the thinking here is so unbelievably shallow that it boggles my mind. The author has no idea of the diversity of dividend paying stocks and their roles in a portfolio. Probably never heard of compounding dividends by re-investing either. Finally this may be the last article I read that starts with a number and forces the reader to look at one or two sentences and then click through to the next page.
Apr 15, 2014 9:00PM
Apr 15, 2014 10:18PM
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I do not care for the way the author presents this article about dividend paying stocks. It is clear that his views are biased in the way he assembles the information.  The author misuses scattered and misleading statistical analysis and other's opinions to state his own opinion of all dividend paying stocks, as if the information was completely factual.


There are pros and cons of investing in dividend paying stocks and there are all risk levels of both dividend paying and non-dividend paying stocks.  You can achieve full diversification in the market using either type of stock, independently or together.  You don't need stocks from 100% of industries to create a diversified portfolio.


One example of the bias in the article - the author handpicked one large corporate name as an example of dividends not being safe - GE suffered through the great recession, due in large part to its financial subsidiary. The author could have picked from a sampling of stable dividend payers (such as those shown as dividend "achievers" or "champions") to study how many of these cut dividends.  While I haven't taken the time to investigate the percentage of pre-2008 dividend achievers that cut dividends in 2008-2009, my guess is that it was a fairly low number.


I have a fully diversified portfolio of 30 dividend paying companies that include both growth and value names.  28 of the 30 have increased dividends for at least 10 years, throughout the great recession, several for in excess of 50 years.  The portfolio's risk profile (26 of 30 investment grade companies) and volatility (beta of 0.70) is lower than the stock market in general,  I don't  claim that it has the same risk profile as bonds and don't suggest that it is a substitute.  I do, however, have a great deal of confidence in a steady and growing income stream over my retirement from the portfolio.


I would just encourage others to not make decisions about dividend paying stocks based solely on a biased article such as this one.



Apr 16, 2014 8:44AM
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Sorry Daniel I disagree with you on all accounts and why are you bashing dividends. I have accumulated 80k in dividend income per year and never have I touched my seed capital. Its dolts like you that give monetary advice a bad name Idiot.
Apr 16, 2014 8:16AM
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If MSNBC is against dividend paying blue chip stocks, I'm all in.
Apr 15, 2014 8:53PM
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I like my dividend paying stocks , not only do I get right now between 14% and 22% yields but the value of the stock itself seems to be climbing faster than inflation . While I am aware that they could change the dividend amount at anytime , when that happens (if it does) I will just have to re-evaluate my position with those companies and possibly move it somewhere else but in the meantime it is the best game in town so don't knock it .
Apr 15, 2014 9:35PM
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For many owning stocks are quite removed from the reality of daily existence. I find dividend value stocks are appropriate for some of my portfolio. Most of theses so called experts that write these columns are at best filling space.
Apr 16, 2014 9:31AM
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I want 5 minutes of my life back.  Fortunately, I figured out on the third slide that Daniel Solin is, in my opinion, a complete idiot when it comes the topic at hand.  While some of his points are valid, they are, as noted, shallow at best.

 

I about rolled off my chair when he said only 53% of small cap stocks pay a dividend, focus on those and you'll ignore 47% of the stocks out there.  No kidding.  Wow.  Penetrating. 

 

Daniel, you want to do readers a service??  figure out if there's a SECTOR of the market that doesn't have a dividend payer in it.  Then if you're only  buying div stocks, you are truly "not diversified" because you're ignoring a sector - assuming that one believes that leaving out a single sector qualifies as being 'undiversified.'

Apr 16, 2014 9:48AM
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I have 30 stocks in my portfolio that pay dividends and only 4 of them reduced their  dividend in the last  5 years . The stocks I own are banks, utilities, manufacturers, reits, consumer staples and leisure. Also a couple of companies raised their dividends during this period. Over all the dividends dropped but not by much and now they are rising again.
Apr 16, 2014 12:18PM
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If dividend stocks return is 9.1% and non-dividend stocks return is 11.1% the dividend usually can make up the difference.  Besides, when your dividends are reinvested, that becomes compounded, therefore your money grows faster becasue you are buying more shares on a regular basis.  And guess whay, your dividend payments continue to increase and the cycle repeats time and time again.  You also pay taxes as you go, so when you cash out, you only owe the capital gains.  Would you rather own 100 shares and hope it grows to sell or purchase 100 shares, reinvest the dividends and watch it grow??
Apr 15, 2014 8:49PM
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In this day and time it is very hard to predict the place to be for the most safety and gain when investing your life savings.... We can only hope it all improves and stabilizes after Obama and the Chicago mob leave DC. Sooner-better. 
Apr 16, 2014 11:17AM
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where  ohhhh  where   do  these  dopey  journalists  come  from?
Apr 16, 2014 11:09AM
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About the only point I can completely agree with the author on is that you shouldn't limit your investments just to dividend-paying stocks since you could lose out on some good opportunities.  His point that tax rates on dividends could change in the future is certainly not a reason not to take advantage of the preferential tax rates enjoyed on dividends now.  At worst, even if tax rates on divdends were raised, they would become no higher than tax rates on interest income.   As to investment returns, you can't lump all dividend paying stocks together and draw conclusions based on an "average".  You have to be selective in the stocks you choose and not  pick just the highest divdend yield as the basis for choosing the investment. 

Apr 16, 2014 8:24AM
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I never heard these "myths." Were they made up just to be refuted? In addition the responses wer incomplete or limited just to support the contentions.
Apr 16, 2014 4:59PM
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I still prefer a strategy of buying moderate P/E high quality dividend paying stocks and re-investing the dividends.  Over time, it's beat any other strategy I've tried.  Sometimes I write covered calls to add to the return, especially when P/E's get near their historical highs. Not as exciting as following momentum stocks, but you sleep better at night and you don't have to work as hard.
Apr 16, 2014 12:36PM
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Why do we own stock? If a company does not pay you part of the profits why own the stock at all? In hopes that someone will pay more for it later? Why should they? The idea that a stock is worth something because the company makes money is flawed. The only way that makes sense is if they pay you a dividend. Without a dividend the stock is worth nothing more than the paper it use to be printed on. If a company goes out of business, are you going to see any money from that investment? Are you going to see any money from the assets it sells? Stock is only worth what someone else is willing to pay for it. It's that simple.
Apr 20, 2014 6:33AM
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Tiny truths in each....but a stretch.  Dividend aristocrats and similar equities have a pretty good record, even in bad markets.  This author would not be my financial advisor, for sure!!
Apr 20, 2014 9:05PM
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Myth numbers 4 and 5 are laughable! What a mediocre article.
Apr 20, 2014 7:50PM
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Yield on cost, many dividend stocks triple or quadruple their dividend per share in 10 years. this gives you a tremendous interest rate after ten years, you may be getting 20 percent interest and can afford to ride out a little 3 year dip in the markets. This article is slanted and has an agenda usualy I read the exact opposite of this kind of thinking.
Apr 20, 2014 6:24PM
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Isn't it odd that msn only invites you to make commentary on anything BUT politics now..

Just fascinating.

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