Stock and Fund Dividends

MSFT stock quotes

When is a dividend not a dividend?

The latest thing “conservative” brokers are evangelizing these days is to buy stocks
that pay dividends. Everyone likes dividends. I know I do, but when Wall Street informs me something I am instantly suspicious because they lie to me each day. Is this a new scam? Let us take a look.

When you purchase a bond or a CD at the bank it pays interest and is a real dividend. You
might get a check each month, quarter or annually or receive a credit to your account. The amount of your principle ( what you paid for it ) remains the same. Yes, that may be a true dividend.

Companies make big splashes about raising their dividend. It was fifty cents per share,
but we have raised it to $1.00. Huge deal. Yes, you will receive a check and at least you know the company has money available to pay you. That is an indication the company is in good money condition, but there were lots of the gigantic names on the NYSE that have continued dividends even when they have bled money. How can that be?

Currently Microsoft has announced a dividend of $3.00 per share. The chatting heads on
CNBC-TV let us they are loaded with money and need to distribute it to their stockholders. Many people buy the stock in expectation of the dividend as they think they will get an extra $3.00 per share. They are in for a massive surprise.

The day that dividend is paid Microsoft stock (MSFT Stock Quote) will immediately
drop $3.00 per share. Today $27.00 ; tomorrow $24.00. Folks, this is NOT a dividend. This is a are being paid in your own asset. The fool that believes the Wall Street mumbo-jumbo will not have one extra penny after the dividend than he did before. In fact he will have less. Why?

The stockholder will now be allowed to pay income tax on the “dividend” distribution. To
make that “dividend” seem even better the Bush administration has reduced dividend taxes from 38.6% to 15%. Thanks, Mr. Bush. Thanks for nothing. I won’t blame him for more Maul Street smoke and mirrors. He has just made it cost less to get back your own money.

Companies seldom pay big dividends and they are paid quarterly. A $30 stock that pays
a 4% dividend ($1.20) on a quarterly basis shows a decrease in the stock price that day of thirty cents per share and is lost in the noise of trading. Few notice that part of the price change is because of the “dividend”.

When you own the stock of any company the most critical factors is to find one that is
in a long term upward trend. Never buy a stock that is showing a decline no matter how “good” the company could be. Even sideways movements should be avoided. Bear in mind you are buying the stock to make money. Forget the dividends and all other “reasons” and remember if it does not go up, don’t buy it!