Dividend

When you decide it is time to inch back into the stock market, dividend-paying stocks can help you boost your long-term returns. Cash dividends represent a distribution to the company’s owners (the holders of its common stock) of a portion of corporate profits. They must be approved by the Board of Directors and most often are paid once a quarter (although they may be paid as often as once a month or as infrequently as once a year).

It is easy to dismiss dividends as you make your investment decisions, because they often seem modest relative to a company’s share price. For example, if you buy shares in a company with a share price of $20 per share and an annual dividend of $0.50 per share, the dividend return (or dividend yield) on your investment is 2.5%. Chances are, when you decided to buy the stock, you were hoping for capital appreciation of well over 2.5% annually to compensate you for the risk related to making this investment. As a result, the additional return from the dividend probably seemed inconsequential.

In fact, history tells us that dividends have been substantial contributors to long-term stock returns. For example, according to a study done by Thornburg Investment Management, approximately 26% of the total return of the S&P; 500 from 1974 to 2004 came from the reinvestment of dividends. Given this historical performance, dividends should not be ignored as you make your investment decisions.

As you do your research on dividend-paying stocks, here are a few important points to keep in mind.

1. Look for the stocks of companies that have an extended record of dividend payments and, ideally, a record of steadily increasing dividends.
2. Consider whether there is any reason the company might not be able to maintain its past record of dividend payments going forward. This is especially important at a time of financial turmoil such as today, when we have seen companies like General Electric with decades of dividend payments behind them not just skip a dividend hike but announce a dividend cut. Be especially wary of industries, like the banks, that have been cutting dividends, and seek out companies and industries where revenue and earnings have held up despite the economic downturn.

One way to evaluate a company’s dividend-paying ability is to follow the cash. You can do this by checking out the cash being generated by the company’s operations relative to its capital expenditures and other investments (these figures appear on its cash flow statement) and its cash dividend payments. Also, check to see if it has any substantial amount of debt coming due in the next few years. If cash generated by the company’s operations is sufficient to fund these capital requirements, that is a positive sign for the safety of the dividend (though, of course, not a guarantee).

3. Find out when the company last paid a dividend, when the dividend was last increased, and the company’s most recent comments about the outlook for the dividend. If the dividend was increased in 2009 (and a surprisingly large number have been so far this year), despite the turmoil in the financial markets, and the commentary from management and/or the Board has been upbeat about the prospect of maintaining and growing the dividend, obviously these are encouraging signs.
4. Beware of companies with exceptionally high dividend yields. Recently, the average yield for all the companies included in the Standard’s and Poors 500 Index was about 2.8%, so a double-digit dividend yield could be a red flag. Therefore, be extra vigilant in investigating super high-yield stocks.

Once you have identified dividend-paying stocks in which you want to invest, see if they have dividend reinvestment programs. If they do, consider taking advantage of this method of using the cash you receive from dividend payments to buy more shares (at no or low cost) in order to maximize your future dividends.

Sources:

Ken Ziesenheim, www.thornburginvestments.com, On the Importance of the Dividend, Thornburg Investment Management

www.indexarb.com, Dividend Yield for S&P; 500, Sorted by Dividend Yield

Dividends are a division of property paid when you own stock in a company. The dividends may come through an estate, trust, partnership or sub chapter of a S corporation. The tax is deducted on the net profit in terms of the initial investment.

Ordinary dividends
Ordinary dividends are provided when a person owns stocks in a company. When the stocks mature and the person makes a profit the profit is considered to be tax deductible.

Capital gain
Investing in mutual fund, real estate or any other form of investment that gives the purchaser a price higher than the investment is considered to be capital gain. This can be short term or long term [more than a year]. The profit is determined when the asset is sold and tax deducted accordingly.

Non-taxable distribution
When investments are made like the purchase of stocks through auctions there may be excessive bids causing the initial investment to be returned. These are the original investments not taxed and are based on the original investment being returned to the investor.

Qualified dividends
Profit on dividends that have not matured are called nonqualified. For example, a mutual fund bought may be sold within 30 days of buying it. However, to be termed as a ‘qualified and taxable dividend’ the share has to be held for a time of 61 days in a 121-day time period. The time begins 60 days prior to the ex-dividend. The period during which the shareholder is not entitled to a dividend is referred to as the ex-dividend date.

Stock dividend
Stock dividends that include the shareholder as having the right to an election referring to how the distribution of the stock payment will be made, qualify the dividend for tax. (Internal Revenue Code § 305(b)(1); Treas. Reg. § 1.305-2.)

Extraordinary dividends
This is a dividend in addition to the regular dividend generated due to unexpected profits. For example if you have invested in a house and the house was sold for a specific amount which later increased due to some additional land becoming apart of the house the latter part of the income would not be considered taxable.

Reinvested dividend
Reinvested dividends allow the investor to buy more shares in the company rather than getting their chare of cash. While you report these dividends they are tax deductible.

References
http://www.foley.com/publications/pub_detail.aspx?pubid=5630

The Virtual Stock Exchange (VSTEX) posted a L$0.05 per share dividend earlier this month along with their December, Quarter 4, and Annual Financial Reports. VSTEX made a profit of L$36,500 in the month of December.

After having paid dividends in 4 of the last 5 Quarterly Dividend Cycles VSTEX is awarded a 3-Star Luminos Dividend Rating, which is awarded to a stock or security that has paid dividends in 66%+ of the last 6 Payment Cycles Applicable, most importantly, the last one applicable. The highest rating a stock or security that has skipped it’s most recent payment cycle can achieve is 2-Stars. VSTEX has been actively traded for 5 quarters, and if it pays a dividend in Q1 2019, will achieve an illustrious 4-Star Rating.

The VSTEX 6DYA (6-Quarter Dividend Yield Average) is L$0.029.

For years there has been talk of ending the Alaska Permanent Fund Dividend by simply offering all qualified residents some sort of large pay-out in the 25K range. While as a lifelong Alaskan resident I have seen very little actual legislation on this suggestion, it is certainly a matter of public debate each year. Personally, while I’d love to get around 100K for my family of four all at once, I would strongly oppose such an action. Why?

Many Alaskans depend on their PFD annually.

It’s hard times everywhere in the U.S. right now, Alaska included. Many residents use their PFD’s to survive the long, low-income winters. As they arrive in October, PFD’s sometimes offer lifesaving funds to families that would otherwise be cold, hungry, or at the least just have a very, very lame holiday season. The last few years my PFD has gone to clear debt we accrued during the start of the winter when work hours slow down.

Cashing out your investments is never wise.

It would be very tempting for many, especially multi-child families, to resist a big payout to say, payoff their house, but cashing in on your investments is never wise. The permanent fund has grown rather steadily over the years, and has only seen a few bad years. If kept, all residents will receive money, hypothetically, forever, not just right now. Resisting instant gratification pays off in the long run. The PFD is really a resident gained investment for everyone from the newborn to the elderly.

It would hurt Alaska’s economy.

First, you have to consider how many residents would move provided with that much money at once. The state would be literally funding a mass exodus. Next, a great deal of that mass pay-out would probably go to debts such as home and auto loans, many of which are not Alaska-based. The money would be flowing out of Alaska. Lastly, the yearly income to residents also means yearly income to businesses. While of course some of the yearly money probably still goes out of state, some is used in state and provides a boost to businesses in the slow season.

As stated, currently there is no active, public legislation to offer a pay-out and elimination of the Alaska PFD, though every year there is often action to “cut-in” to the profits so to speak for state funding of something. This Alaskan will continue to fight to preserve the fund for the people of our state, whether it means no big pay check in my pocket or not.

One of the marvels of technology, more particularly global social net-working, is the youths’ aspirations have converged, at least much better than it ever was. Some countries are still fighting a battle to keep out the flow of news & views from across the globe but they know it is a losing one against the onslaught of information that glues the young! Earlier times, it was easy for some governments to unite their people based on hate against known or even unknown enemies! Now the cover is truly blown, the real enemy is mostly within! Usual culprits are their own leaders, any ploy to hang on to power at any cost! The times to hoodwink the people big time are past!

Of course, religion & culture divides people but it can be healthy to have variety as long as it is not iron-clad! Whatever the diversity in thinking & beliefs, the aspirations are clear; people aspire for peaceful life everywhere. Of course, that can come under pressure when they are manipulated! But the truth would prevail sooner especially now with faster & easier access to the others’ points of view.

Though some issues might ignite wars if left to fester, things have turned much better. Recently, a World War I war veteran was ruminating over lives lost, what use when at the end of the day a piece of paper is signed for peace & things are back to square one! Such reflections should bring out the futility of wars between countries with ever more potent weapons to cause mass misery & annihilation.

Now the real enemies of people are the terrorists, not other countries. The majority everywhere would vote & even fight for peace as one! That makes the present time one of the best for striving for all-out for peace among nations & isolating those against humanity. All festering issues between nations should be secondary to be cast in the back-burner, to be resolved only after the peace dividend is spread around!

The thrust for confidence building should start with all nations revealing their cards to show their real intentions! Why not be open when the intentions are noble or at least legitimate? There were issues on Iraq as IAEA came up with nothing on Weapons of Mass Destructions. The intention was murky that divided the world & still does! Any unilateral action on doubtful hypothesis puts off anyone. Sure, there should be better alternatives than jump the gun!

The issues that create frictions are also receding with the march of technology. On the other hand, technology can also make any thought of war dreadful. All would end up as losers in the end in the same boat for an unknown destination!

The dividend that we pay ourselves from peace everywhere should be invested in renewable energy, better health care, infrastructure etc. Uplift of the poor will require massive resources but more importantly again revealing our cards upfront – a joint venture among the nations to cast away the baggage of suspicions! With one key-stroke we should try to reformat & start on a clean screen or even old-fashioned slate!

Technology has also brought the nations together, ironically by way of the hard truth that the evil can access the button of destruction. They have to be kept away by united action of all good men not forgetting the women, united as one irrespective of religious, political, cultural diversities! The peace dividend reaped by avoiding war at all costs should be invested for the future than leave a trail of destruction for future generations to start at a level much worse than we inherited. What a let down that might be & what karma that we might carry that can doom & damn us forever!

There is only one way forward – the right way to exist based on casting away ego & get cracking on the basics. The peace dividend is within our cusp! It is up to us or we can blow it away, maybe forever!