Dividend Investing

sevenhills

Roman Abramovich is the owner of Evraz, a high dividend(12.89%) paying stock, whether its ownership is relevant I don't know.

The share price is rather volatile, but it is into coal mining and a steel manufacturer.

https://www.google.com/finance/quote/EVR:LON?sa=X&ved=2ahUKEwia2uDF38z0AhUTXsAKHYtmDmcQ3ecFegQIChAe&window=5Y

NedS

AsifM068 said:

Why are value stocks correlated to high dividends and short term gains please?

For me, it's all about earnings.

Growth stocks, are companies who are able to grow their earnings year on year. You are paying now in the higher share price for that assumed future growth in earnings. In order to grow their earnings, the company may well decide that the best use of their profits is to reinvest it back into the company. They will continue to be a growth stock as long as they are able to continue to grow their earnings, and their share price will continue to rise as a result of that ability to ever increase the amount of money they can make. Of course here the risk is you are paying for the hope of future performance, which may or may not materialise.

A value stock is one that the investor feels is undervalued by the market. This opinion of undervalued may be based on discounted cash flows or some other accepted method. The fact the valuation is low means the dividend paid as a percentage of the share price rises (hence higher percentage dividend payments) and the share price has the potential to rise in the short term if the market recognises the stock is undervalued and a price re-rating occurs. A classic example of this may be tobacco stocks (e.g, BATS). The share price is currently low based on earnings (2500-2600p, P/E of <8, dividend yield >8%). A discounted cash flow valuation may place the value of the stock well above 3000p, maybe 20-30% above it's current market value so there is the potential for short term upward movement in the share price. Of course there are reasons BATS is "under-valued" - it's a sin stock that many investors simply won't touch. It's long term growth prospects are limited as more and more restrictions are placed on smoking, and that places doubts over it's future cash flow generation and hence it's ability to continue to pay out those beefy dividends out of it's free cash flow.

Alexland

AsifM068 said:

They / Mr YouTube says that the next decade will herald a period for value stocks investing

Maybe, maybe not. If it was that obvious the style rotation would have already significantly happened. While it's amusing to watch I am happy to hold a bit of both with our low cost global trackers so whatever happens we should do alright in the long term. No need to take a high risk bet either way.

AsifM068 said:

in contrast to growth for the markets are way to overvalued at present

Growth companies are valued based on the expectations of future earnings growth not current fundamentals. For example I have little doubt that companies such as Microsoft and Amazon will both do very well over the next few years. It's almost certain. The question is if they will do well enough to support their current valuations within a reasonable time and then if there are further unpriced opportunities to grow earnings to cause valuations to grow again.

Thrugelmir

NedS said:

AsifM068 said:

Why are value stocks correlated to high dividends and short term gains please?

Growth stocks, are companies who are able to grow their earnings year on year.

Every company board's objective should be to grow earnings year on year. Growth stocks are those that are forecast to grow at a rate above the market average. 

GeoffTF

AsifM068 said:

NedS said:

There are only so many things a company can do with it's cash when it makes a profit. It can reinvest that cash for future growth, and that in itself can take many forms - investing in automation, efficiency, people, training, advertising, buying out the opposition etc. Or it can reduce debt, or buy back it's own shares, returning value to shareholders as the proportion of the company you hold increases, or it can pay out cash to share holders by way of dividends (or a combination thereof). Depending on the company, hopefully the management will make choices suitable for that company that give the best overall return.

For my understanding please; a company sells shares to raise equity, so why would a company buy them back and following a buyback and I have less shares, how have I benefitted?

They do not buy back your shares, unless you sell them. If you do nothing, you retain the same number of shares after the buy back, but you will have a bigger proportion of the shares in issue (i.e. you own a bigger proportion of the company). The company is worth less, because it has returned money to shareholders. When they buy back shares, the share price should not change as a direct result. If they return the same amount of money as a dividend, the share price should fall by the value of the dividend when the share goes ex-dividend.

tebbins

GeoffTF said:

AsifM068 said:

NedS said:

There are only so many things a company can do with it's cash when it makes a profit. It can reinvest that cash for future growth, and that in itself can take many forms - investing in automation, efficiency, people, training, advertising, buying out the opposition etc. Or it can reduce debt, or buy back it's own shares, returning value to shareholders as the proportion of the company you hold increases, or it can pay out cash to share holders by way of dividends (or a combination thereof). Depending on the company, hopefully the management will make choices suitable for that company that give the best overall return.

For my understanding please; a company sells shares to raise equity, so why would a company buy them back and following a buyback and I have less shares, how have I benefitted?

They do not buy back your shares, unless you sell them. If you do nothing, you retain the same number of shares after the buy back, but you will have a bigger proportion of the shares in issue (i.e. you own a bigger proportion of the company). The company is worth less, because it has returned money to shareholders. When they buy back shares, the share price should not change as a direct result. If they return the same amount of money as a dividend, the share price should fall by the value of the dividend when the share goes ex-dividend.

In reality the company is transferring cash from the balance sheet to investor's share prices, so it does support the price whether the shares are cancelled or retained in treasury and the value should not decrease. Whereas with a dividend, that cash is in the investor's hands for them to decide what to do with, if they reinvest it will support the share price vice versa if they sell a buyback it would be as if they had received and kept a cash dividend.