Focusing On Dividends Alone Remains A Big Mistake

Published Tue, 28 Feb 2012 09:58:57 -0500 on Seeking Alpha

Investors continue to focus on dividends as the best and in some minds the only way to return capital to shareholders. That remains a big mistake as the population of stocks with a high dividend payout ratio, not to mention ones that even pay dividends has been shrinking just about every decade. Several key factors have influenced these decisions. First, the historical tax disadvantage of dividends versus long term capital gains has worked to weaken the focus on dividends. Second, the SEC instituting rule 10b-18 back in 1982 made it easier for firms to implement buybacks without stock manipulation charges. Third, market participants place such a great emphasis on maintaining steadily increasing dividends that corporate boards prefer the flexibility of buyback programs over the negativity of reducing a dividend. Mebane Faber at the World Beta blog posted a great summary of the decline in the dividend payout ratio and the... Read more



Stock name                                 ISIN Last trade   P/E Earnings/Share Dividend/Share Dividend yield
KOHL'S
US5002551043 41.66   0.0 0.00 0.00 4.71
VERIZON COMM
US92343V1044 51.12   0.0 0.00 0.00 4.45
SOUTHERN COMPANY
US8425871071 49.49   0.0 0.00 0.00 4.29
GAP
US3647601083 21.67   9.8 2.22 0.92 4.21
ALTRIA GROUP
US02209S1033 62.93   22.6 2.78 2.26 3.60
MERCK & CO
US5893311077 53.60   32.9 1.63 1.84 3.40
ISHARES DOW JONES SELECT DIVIDEND INDEX FUND
US4642871689 81.68   0.0 0.00 2.52 3.09
ELI LILLY
US5324571083 74.60   34.4 2.17 2.04 2.71
CONOCOPHILLIPS
US20825C1045 42.76   0.0 -4.98 1.00 2.31
SPDR S&P DIVIDEND ETF
US78464A7634 80.97   0.0 0.00 1.84 2.28
TRAVELERS
US89417E1091 110.45   10.4 10.63 2.44 2.20
VANGUARD DIVIDEND APPRECIATION ETF
US9219088443 81.07   0.0 0.00 0.00 2.02
NORTHROP GRUMMAN
US6668071029 214.10   19.4 11.01 3.20 1.51