High Divident fund investing?

Prism

IanManc said:

Moe_The_Bartender said:

When you receive a dividend the value of the company reduces by the amount of the dividend paid out. In effect, a dividend represents a partial liquidation of the business. You are not receiving an income as much as a return of your own money.

Real income from investments is rent, contract payments, debt and royalties.

A dividend represents a portion of the profit made by the business, unless the company is borrowing to pay the dividend. A dividend does not "represent a partial liquidation of the business".

It does to some degree. A company is dropping its own valuation by paying the dividend. The business is worth less after the ex-dividend date.

wmb194

All other things equal, if a dividend is sustainable it will eventually come back into the price. How long it takes is another question. Sometimes it can be the same day it goes ex, other times it can take months. Of course, another factor is the size of the dividend.

Moe_The_Bartender

Unfortunately many companies have borrowed money to maintain dividend payouts and shareholders have been too stupid to notice. A company should only pay dividends out of actual profits. 

Linton

Prism said:

IanManc said:

Moe_The_Bartender said:

When you receive a dividend the value of the company reduces by the amount of the dividend paid out. In effect, a dividend represents a partial liquidation of the business. You are not receiving an income as much as a return of your own money.

Real income from investments is rent, contract payments, debt and royalties.

A dividend represents a portion of the profit made by the business, unless the company is borrowing to pay the dividend. A dividend does not "represent a partial liquidation of the business".

It does to some degree. A company is dropping its own valuation by paying the dividend. The business is worth less after the ex-dividend date.

Yes but - in paying a dividend the company is saying that it cannot use or does not want to use the wealth from profits within its business to benefit the shareholders.  Just keeping the money that would otherwise be paid out as dividend in the bank may keep the valuation from a pure accounting point of view but it's hardly a good use of capital either for the company or its shareholders.

Linton

Moe_The_Bartender said:

Unfortunately many companies have borrowed money to maintain dividend payouts and shareholders have been too stupid to notice. A company should only pay dividends out of actual profits. 

Yes.  In choosing a share for dividends you should always look at the Coverage - net income after deduction of all costs divided by total dividend.  Anything less than say 1.2 should be treated with suspicion.

Prism

Linton said:

Prism said:

IanManc said:

Moe_The_Bartender said:

When you receive a dividend the value of the company reduces by the amount of the dividend paid out. In effect, a dividend represents a partial liquidation of the business. You are not receiving an income as much as a return of your own money.

Real income from investments is rent, contract payments, debt and royalties.

A dividend represents a portion of the profit made by the business, unless the company is borrowing to pay the dividend. A dividend does not "represent a partial liquidation of the business".

It does to some degree. A company is dropping its own valuation by paying the dividend. The business is worth less after the ex-dividend date.

Yes but - in paying a dividend the company is saying that it cannot use or does not want to use the wealth from profits within its business to benefit the shareholders.  Just keeping the money that would otherwise be paid out as dividend in the bank may keep the valuation from a pure accounting point of view but it's hardly a good use of capital either for the company or its shareholders.

Agreed, its not a terrible thing to do with excess cash and I'm not against getting a dividend if there is nothing else for the company to spend it on. The OP was specifically looking at higher dividend payers which I'm not convinced is worthwhile. Also worth noting that US companies tend to buy back and pay lower dividends and so would be a shame to miss out on those just looking for the dividend.

Sailtheworld

I tend to prefer dividends to share buy backs.

If I have the dividend then I can make my own decision about whether I want to buy additional shares at the current price. It's a more expensive way of getting a bigger share of the company but I don't see why, say, BT with an expertise in Telecoms is qualified to determine whether their shares are good value (the answer is almost always going to be yes).

MinuteNoodles

album_song said:

There are funds like VHYL, Vanguard UK equity income, iShares Quality Dividend that are essentially index funds that buy either high dividend yielders, or resilient dividend payers.

The last 10 years has been particularly bad for dividend stocks, but over the very long term they have tended to slightly outperform although no-one knows if that is substainable indefinitely, so IMHO just buy the index.

Those were what I had in mind and the reason for considering it what you also posted.

Thrugelmir

Prism said:

Linton said:

Prism said:

IanManc said:

Moe_The_Bartender said:

When you receive a dividend the value of the company reduces by the amount of the dividend paid out. In effect, a dividend represents a partial liquidation of the business. You are not receiving an income as much as a return of your own money.

Real income from investments is rent, contract payments, debt and royalties.

A dividend represents a portion of the profit made by the business, unless the company is borrowing to pay the dividend. A dividend does not "represent a partial liquidation of the business".

It does to some degree. A company is dropping its own valuation by paying the dividend. The business is worth less after the ex-dividend date.

Yes but - in paying a dividend the company is saying that it cannot use or does not want to use the wealth from profits within its business to benefit the shareholders.  Just keeping the money that would otherwise be paid out as dividend in the bank may keep the valuation from a pure accounting point of view but it's hardly a good use of capital either for the company or its shareholders.

Agreed, its not a terrible thing to do with excess cash and I'm not against getting a dividend if there is nothing else for the company to spend it on. The OP was specifically looking at higher dividend payers which I'm not convinced is worthwhile. Also worth noting that US companies tend to buy back and pay lower dividends and so would be a shame to miss out on those just looking for the dividend.

US companies have borrowed to fund share buy backs. Not funded through free cash flow. Form of financial engineering to enhance EPS and enable executives to meet the objectives of their remuneration packages (which in part will be free shares).