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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: BGR who wrote (83649)	12/4/1998 7:19:00 AM
From: Geoff Nunn	Read Replies (3) \| Respond to of 176387

Apratim, there are several reasons why I don't like DRIPS as investments. (Chuz earlier alluded to one of them): 1. If you have a DRIP in a taxable account, over time you can expect it to perform less well, other things equal, than a pure growth stock that doesn't pay dividends. Suppose we have two stocks, DELL A and DELL B. DA is a pure growth stock whereas DB pays a dividend. (say $1 per qtr.) Initially, both stocks trade at $65. On ex-dividend date, the market price of DB will fall to $64. If you own DB you will now have $64 securities plus $.61 in cash, once you have paid your income taxes. (this assumes your marginal tax bracket is .39). Granted, you can purchase additional stock with the $.61 but your investment is still is worth only $64.61. (Okay - $64.68 if we assume you purchase additional shares w/o commision and at a 10% discount.) Unless this is a tax sheltered account, you would have been better off to invest your funds in a pure growth stock so that all returns are capital gains. 2. I don't see any bona fide economic benefit (efficiency gain) in a firm sending money to shareholders in one envelope, only to have it sent back in another. Isn't there a freight charge to be collected here? Isn't this what the Federal gov't in Washington D.C. does to taxpayers in the various states (i.e., subsidies to States)? Can't you do better than DRIPS simply by investing your money in growth stocks? The only way I can see a DRIP being better is if you hold the investment in a tax shelter, and the firm is willing to give you discounts, and the value of the discounts exceeds the drag on the firm's earnings which are a result of the program's costs. Geoff