Investing 102

[GregWeld]

Originally Posted by Chad-1stGen

I've been lightly looking into more dividend stocks in the last 6 months or so. However, I now see these threads popping up on every single site I visit regularly...

Reminds me when everyone was day trading and then everyone was in real estate.

Most stocks I've looked at still seem to have some compelling fundamentals but when everyone and their brother is talking about a dividend investing strategy it has to make you wonder.

BTW -- I think this is a FANTASTIC observation.

I have always said -- if the grocery clerk tells you about the latest great way to make money --- RUN --- RUN AWAY from that idea - whatever it is -- because by the time the clerk is in -- it's nanoseconds from complete collapse!

I do not feel this way about DIVIDEND investing. Because of the reasons I stated in my earlier post.

I really just wanted to say - this is EXACTLY the kind of info and thought processes that I love to see in this thread -- because you are spot on! EVERYONE is looking for YIELD... because the world is in a deflationary period and it's just harder and harder to figure out where to get a decent return on your funds. If there's no "growth" -- then the growth stocks (they don't pay dividends) suck - if there's too much growth - then the interest rates will go higher and money will move to "interest bearing" stuff and out of the stock market. But -- BIG BUTT -- If a dividend paying stock price goes DOWN -- then the dividend % actually RISES.... so the dividend paying stocks tend to stay in lock step with other interest rate bearing "investments". Their share price might go down - but that dividend is declared as a dollar (cents) amount not a percentage of the share price..... so as the share price declines the percentage of the dividend rises. When the share price declines - I tend to buy more shares. It brings my average cost down - and keeps the dividend return percentage near where I need it to be.

Think of this as a rental house versus your own home. The major difference between the two "investments" is that the rental guy is paying the mortgage on the rental house - and eventually you'll kick him out and sell the house...

A dividend stock is paying you every quarter. If you choose to reinvest the dividend (rather than take the cash payment like I do) - then when the share price is low - you'll buy MORE shares - if the share price is high - you'll buy LESS shares.... but regardless of that - you'll end up with MORE SHARES which will pay you more dividends which will buy more shares which will pay you more dividends...

So let's look at my Annaly (NLY) post above -- I get $57,000 per year -- I have 400K invested - in 10 years what do I have invested if I take the dividend and spend it. Dude -- In 10 years THEY have PAID ME - $570,000 and I still have 400K (if the share price just stays exactly where it is today) worth of stock (or in other words I still own the asset). Now - had I chosen to reinvest the dividend? OMG -- Every year I'd have gotten MORE than the 57,000 because that amount of money would have bought another 3,000 shares... so the following year (2012) would have paid me dividend income of ($7600 plus the 57,000 = 64,600) and that would have bought another 3800 shares.... so now I'd own 31,800 shares paying $72 GRAND per year and if I reinvested in the shares I'd by buying $72,000 worth of shares to add to my pile! So do you see why this works??

I cash mine and piss it away on cars and stuff.... don't be like me. Check the "REINVEST THE DIVIDEND" box!!