>> I sure didn't buy them because of the dividend. <g><<
Stan, as an individual you're right, but many funds, particularly pension funds, are restricted to buying stocks that pay regular dividends. Thus, when the dividend payment was announced, even though it was really peanuts, it was still enough to trigger widespread institutional buying. All you have to do is look at the stock performance over the past ten years to see the impact.
Individuals should be less worried about dividends than about creating wealth. This concept is not understood very well even by economists, who tend to use dividends as a proxy for overall yield, and then use that measurement to help determine if the market is too high. In a recent book by a Princeton economist, which got a lot of publicity a few months ago, the author cited the low dividend rate on the S&P 500 as one basis for arguing that stocks are too high. Specifically, he was worried about the current dividend yield on the S&P 500 being far below historic averages.
We all know that dividends don't necessarily make a stock attractive to individuals. After all, the dividends are fully taxable, and since they are paid by the corporation after taxes on its own profits, it amounts to double taxation. No wonder corporations aren't all that anxious to pay high dividends. It is better to create wealth and measure the "yield" of a stock as the average unrealized net gain in book value. If we used this measurement as an indicator of whether the individual stock, or the whole market was too high, we'd be better off. And SanDisk would then be seen as a very reasonable value, as would QUALCOMM, for the reason that the companies have a consistent record for creating wealth at very high growth rates.
The conventional wisdom, however, favors looking at dividends, and some of the fund restrictions on portfolio managers ensure that some of the best stocks will not be considered for inclusion in a portfolio until they've already passed their highest period of growth.
Art |
