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Dividend versus Value Stock

Discussion in 'Shares' started by Tropo, 6th Aug, 2008.

  1. Tropo

    Tropo Well-Known Member

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    Dividend versus Value Stock

    Most people, investor or not, are likely to misconceive that Value Stock must have a good Dividend.
    If the dividend is high compared to share price, then that share is supposed to be more “Value Stock” . When market is bearish, brokers and newspaper will show the list of the top ten dividend stock and suggest investor to put money in them.
    Most of successful value investor will say “Dividend is the last factor that count”.
    Some of the greatest value investors do not care about the dividend at all.
    So it is apparently wrong about the dividend and the value investment .
    Because value investment is the concept that will lead to buy the share that has real value a lot higher than the market price. So it is called “Value Stock” .
    “ Dividend Stock” is just the particular one that have high dividend rate.
    In Value Stock , we need to forecast the future cash flow which have affected by many factors.
    Such as its industry, marketing, manufacturing, management ,financial status, competitive advantage and much more.
    But Dividend play is a lot more easier ,you just use the historical data to see the dividend on the past years and it is done
    From Value Investor ‘s view, dividend is just one of minor factor.
    Dividend is a bonus reward for the patient. Because value investor have to hold the stock very long time before market can realize its real value and price will appreciate.
    So during that time if the value investor does not get anything, it might be too meant for him/her. So some dividend will do a good job at fuelling the investor.
    But some firm that have very high dividend rate is not a good sign.
    Some might provide 10% dividend yield or it payout all of its earning to shareholder.
    This is a bad sign, the firm might cannot grow further so they pay all earning instead of keeping it for more expansion.
    And then someday in the coming year, the dividend rate might be fall cause company can sustain its earning on the no-growth situation.

    Good dividend might turn out to be a trap to lure the investor. And this is not the “Value Stock” at all.
    Dividend versus Value Stock - Bullish Information . Value Investment Home !
     
  2. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Mark, if I could I'd give you kudo's. Thanks for the post.

    Mark
     
  3. Tropo

    Tropo Well-Known Member

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    Mark,

    It is a kind of an eye opener I would say...;)
     
  4. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I agree with what the guy said. I personally don't understand why people think a share is good just because it pays a high dividend. Like was pointed out in the post, if buying for value, then the dividend is only a very small part of the whole.

    A business' health is not determined by the dividend it pays alone, especially since it is entirely possible for a company to borrow to pay a dividend. Thorough research of the underlying business is absolutely vital when using a buy and hold strategy.

    Mark
     
  5. Billv

    Billv Getting there

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    I agree and it's time to review my watchlist I think....

    Cheers