This morning I was reminded of something that is somewhat important... especially in this thread.
AT&T (T) will trade today "EX" dividend -- meaning - that if you owned the stock PRIOR to today - you'll get this quarters dividend payment. That isn't very important actually except that you might see T trade down the equivalent .45 cents per share - on what otherwise might me an up day for the market. This is perfectly normal - do not adjust your television set... LOL
What I picked up on though -- which I know and understand -- is that as the stock price has RISEN -- that wonderful dividend % payout has decreased on a percentage basis. I pulled up my spreadsheet to see that T is paying me 6.22% on my cost basis... but if you bought Friday -- you'd only (only?) be getting 4.75% -------- this is the same .45 per share but your cost basis would be higher.
WHY IS THIS IMPORTANT YOU ASK.... <like the old Romper Room -- I can hear you through my computer>
Well it's important IF --- big IF --- and WHEN --- big WHEN --- interest rates start to rise. As an investor -- and we're really talking big sum investors here -- but they're the ones that move the markets.... you're always doing the math on where you can earn money NET NET. So when and if treasuries etc start to rise --- and a guy could earn 4% tax free vs T's 4.75% taxable well... share prices will FALL because money will move out of T and into the other comparable investment.
WHAT I'M SAYING here is not that this is going to happen this week - or this year or even this decade..... what I'm saying here is to learn and pay attention to these market relationships! EVERYTHING is based on interest rates... WE have zero control of this but we can, do, and should, pay attention to them!
While we want our share price growth AND we want our dividend.... the share price only grows when someone is willing to pay more per share than we did/were. But the dividend percentage falls as the price grows.... at some point this math catches up to OTHER interest bearing investments... and the price will have to be adjusted to make it all "work".
What I look at is % return on my money. I live off my investments and their cash flow. I try to be somewhat tax adverse... so I trade VERY little.... I call up the old spreadsheet and think 6.22% (with 20% tax rate) is pretty decent and the company is solid as hell -- and well run. So I'm a happy camper.
Interest rates - in the environment the world is in right now - move pretty slowly. Don't fight the FED is an old saying that usually holds true... so as long as the FED is working hard to keep interest rates LOW.... the stock market is pretty good! But if the FED starts to allow those rates to rise... then just beware - and learn from - what happens to housing - the stock market - auto sales etc.
PLEASE do not read anything into this post other than exactly what I'm saying -- it's just a reminder for Investing 102 -- so that you don't forget about all the little things that affect the stock market. EARNINGS are the most important -- if they're good or growing -- we're golden.... and INTEREST RATES being low are good! There will be a point going forward that earnings are good and interest rates are low because the economy is good... once it gets TOO GOOD... then rates will creep up. We have no clue when that's going to be. We don't have to take any action... just understand the relationship.
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