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24HourForums.com > Supported Forums > 24's Money Business > I just read this blog entry and I agree with it. |
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Mercurynut Guest
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Dividends are superior to interest Posted Feb 23rd 2007 5:57PM by Georges Yared Filed under: Good news, Newspapers, Internet, Blogs, Columns, Books A friend of mine was as happy as all get out because he just put some long term savings into a bank certificate of deposit (CD) and is getting a 4.67% rate of return for 6 months. The funds he put into the CD were long term savings money and not earmarked for any near term expense. Man he was thrilled. After yawning I asked him why he did that as opposed to buying a good, high-paying dividend stock. He had that deer in the headlights look. Four good things can happen to you if you buy a good company that pays a healthy dividend.1) The payments are 4 times per year as opposed to every 6 months. This can help those rely on steadier cash flow. 2) Good companies have a history of raising those dividend payments becaiuse of earnings increasing.. 3) Federal taxation on dividend income is at a flat 15% as opposed to your full Federal tax rate on interest earned. 4) Good companies that pay high dividends and have a history of raising those payments typically have a higher stock value in 1, 2 or 3 years. Compare this with a bond or CD. 1) You will receive back your initial investment, but not a penny more, 2) you will be fully taxed (except if it is a municipal bond) at the Federal and if a corporate bond or CD, your individual state level, 3) interest payments will never rise during the course of owning the bond or the CD-its fixed. My friend wasn't so happy after we spoke, but I least bought the coffee...
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24HourNut Administrator  Body pillows rock!
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True, but keep in mind there is greater risk with the stock. Unlike the CD, there is always a reasonable chance you can lose the principle as that stock value plunges. So, a diversified portfolio or fund of dividend-paying stocks is something to consider to dilute the risk. A single dividend paying stock is MUCH riskier than a CD, and this is factored in. So you must weigh in and recognize that there is a serious risk to principle with that single stock compared to the CD. You then have to ask yourself if the risk is worth it. In a diversified fashion, with time, and depending up your circumstance, it may be well worth it. But it is not fair to compare one to one as without the cost of the risk factored in. The company can miss earnings reports and tank, or just not do well that decade and slowly decrease in value whereas the CD principle will remain the same. Or, maybe a scandal hits the company and dividends stop as the share price tanks. One stock is very risky. In addition to comparing to that 4.67% CD, higher rate CDs on the secondary market should be compared, as well as 6, 7, and 8% corporate bonds that may be less riskier than the stock in terms of the chances of losing principle.
 The best human beings start good new topics and vote on the better posts. |
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Pyrite Original500© Member 
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And then there's a Heimlich day like today.
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Pyrite Original500© Member
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I'm down a bunch on paper from the "top" but still holding the divvy stocks from much lower. The capital gains tax makes it a bitch to try to TRADE them and still be able to return with no loss. Cap gains, wash sales, .... tuff road. Problem is that most people (me included) buy the suckers for the income and then get caught up in the share price. Gotta use the DISCIPLINE to stay for the reason ya entered.
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RaVen Forum-Blogger© Original500© Member  ~I am The Queen of Mars~
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I'd like to learn more about this stuff! Who would be best on here to talk to? And Mercury, I'm glad you bought the coffee. That was very nice of you 
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24HourForums.com > Supported Forums > 24's Money Business > I just read this blog entry and I agree with it. | ||||||||||||||||||||||||||||||||||||||||
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