When invest in stock market, why are people so hard up over dividends?

[specuvestor]

Eratat Lifestyle are borrowing money at crazy interest rates of 12.5% EAR.

10 year risk free is at 2.5%. They are screwing up their capital structure with this bond commitment. Only desperate indebted companies would accept to such deals to delay their death

Worse, they have the cheek to give dividends. They are effectively borrowing at 12.5% to give dividend.

Now, trading halted because default on bond

So do not be fooled by dividends and use it as your first screen

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1) Dividends tells you the company has cashflows to pay. It is a function of comfort... obviously your credit risk with S-chips and Apple are not the same thing. But Apple can become Blackberry in just a decade... Blackberry didn't pay dividend either, so for those who think they can reinvest in similar IRR as past decade....

2) Dividends are cash flows to the investors, which is very different from cashflows WITHIN the company. To realise cashflow from capital gains you need to sell.

I would say dividend payment is one of the best tool for investors, but simple caveats of borrowing for paying dividends should be monitored closely. Eratat is not even a good example as it was too obvious a duck. No hindside needed. I can also tell you that China Sports is also a duck while I'll be VERY surprised if YZJ is fake. Just need to think like a rational businessman.

[Temperament]

... that's why we have to look at bottom line in relation to Free Cash Flow very closely. Actually if you can spot any company who borrow money to pay dividend, i say i will run first. Usually company will do a financial engineering that will not be spotted so easily by layman like me.

[gautam]

wahkao, specuvestor and temperament mentioned some valid points. Good basis for further discussion, which i want to highlight certain points.

wahkao "'So do not be fooled by dividends and use it as your first screen''
temperament ''that's why we have to look at bottom line in relation to Free Cash Flow very closely. Actually if you can spot any company who borrow money to pay dividend, i say i will run first. Usually company will do a financial engineering that will not be spotted so easily by layman like me.''

- agreed. to avoid this, I would encourage investors to look at the past dividend payout record as far back as possible. personally i like to see companies with 10year records at least as the longer the past record, the more comfortable I tend to feel. i would take a closer look at those companies which are able to increase their payout over time.

Points to take note:

1) certain companies are in business which are cyclical in nature. Thus a longer time frame would be needed to ascertain the trend. that's why the longer the record, the better it is.
2) take note of the share count also, because over time, there might be changes in the no of shares. normally, I would look at the ar to check the actual amount of dividends paid out actually.

specuvestor ''1) Dividends tells you the company has cashflows to pay. It is a function of comfort... obviously your credit risk with S-chips and Apple are not the same thing. But Apple can become Blackberry in just a decade... Blackberry didn't pay dividend either, so for those who think they can reinvest in similar IRR as past decade....

2) Dividends are cash flows to the investors, which is very different from cashflows WITHIN the company. To realise cashflow from capital gains you need to sell."

I cannot agree more.

Further points:
from the past 10year record of increased payout actually means that the company has a sustainable moat and is growing, otherwise, it won't be able to sustain that sort of decade payout. fanciful money is highly unlikely if the pattern of payout is without doubt. if one is satisfied that there is a high likelihood of the company repeating its performance into the next decade, there is high likelihood that he could grow his wealth much more rapidly through the simple principles of dividend compoundation. And IMO the likelihood of wealth accumulation and the comfort of doing so, surpasses that of trying to plan the time to enter the market and using capital gains of a stock to purchase another.
this could take place WITHOUT the need to sell this cash generating asset of his and he has the option to use this cash flow either to compound back in or buy into another cash generating asset.
personally, I would favour companies with the raised div characteristics than one that adds value to the shareholders merely by the raised share prices without paying any dividends or pay a miserly dividend. I would rather have the option of having my ''new cash'' and decide how I would deploy it, rather than stuck with the company till the day I decide to sell my shares.


gautam

[wahkao]

... that's why we have to look at bottom line in relation to Free Cash Flow very closely. Actually if you can spot any company who borrow money to pay dividend, i say i will run first. Usually company will do a financial engineering that will not be spotted so easily by layman like me.

nice
good advice on the free cash flow
up your rep!

[wahkao]

some people say no scared, they are long term dividend investors

slowly slowly collect dividend will make up for its loss?

so drop 50% liao forever neber recover how sia..... keep holding?
drop to 80% keep holding?
drop 90% keep holding?

become super long term cold storage dividend investor?

creative buy at $27 now is $2 no scared?
1 fine day it will recover?

your $100,000k become $8k no scared?

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[felixleong]

if u so scared then don't buy individual stocks
just buy the index, STI ETF is good, confirm real dividends, confirm if u hold for long term (over 20 years) will get decent returns

[Temperament]

Like individual stock investment, Index funds investment can make you lose money for years and years(Nikkei Index). There is actually no exceptions in investments.

Quote:
“ You got to know when to hold 'em, know when to fold 'em,
Know when to walk away, know when to run.
You never count your money when you're sittin' at the table,
There'll be time enough for countin' when the dealin's done."

My apology valuebuddies, i am not encouraging gambling but to emphasize there is a rhyme and reason and time for everything.


Of course at times you will be caught. i am quite sure even WB has been caught. i think he did said so.
The only very big difference WB can survive quite easily when caught, can us?
Now who has not been caught before?
Are you still surviving?
Do you still have the passions for the market?
Only you, yourself know the answer.
Please don't ask me.
i am just talking nonsense here. (Aka dare to think aloud)
Shalom.

[corydorus]

Think this is a bad example. Frankly what do you see in Creative that is value buy that you can average down or hold long ?
Technology companies can flip within a year or two, and never look back.

[chialc]

Think this is a bad example.

CREA highest point is 2000 @ $64
Yesterday close of $1.99
means $100k become $3.1k

This is in line with other of high tech/e-com companies performance since 2000.

I don't know about you, but I know many people really hit hard by worldcom, enron etc bankrupt.

This serve as a reminder for me not to catch a falling knife too.

Love Compassion

[candy188]

The traumatic permanent loss incurred by a friend in his 30s who had quit the stock market scene:
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From my own experience (humongous loss in MDR aka ACCS), the best solution is to admit to yourself that you make a mistake & cut loss, instead of holding on to the leaking boat.

2. Loss Aversion bias

Another undisputed fact: We all hate losing.

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Some of us more than others, but basically, we all hate losing.

Imagine the following scenario.

You have bought shares of Creative Technologies a decade ago when it was the undisputed market darling and breaking new highs every week.

Unfortunately it has since fallen on hard times and the share price is barely a fraction of what it used to be. However, the loss is just too painful to bear and you have put off selling the stock for years and years on end.

One day however, you receive a statement from your broker stating that a trading glitch occurred and that you Creative Holdings have been mistakenly disposed off. The brokerage is offering to buy back the shares for you at no charge and just needs your consent. Would you give the consent?

My guess is that you would simply let it pass. Chances are you would be relieved that someone else has pulled the trigger for you and happy for the extra amount of money you find in your bank account from the sale.

That is Loss Aversion at work for you. LOSSES are deemed much More Painful than Unfulfilled gains, and we tend to AVOID them at all cost.
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Because of Loss Aversion, we end up hanging on to our losing trades when we should have CUT our LOSSES and moved on.
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Such behavior is unbecoming, but sadly, extremely common amongst investors.

http://www.bigfatpurse.com/2013/08/3-psy...decisions/
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some people say no scared, they are long term dividend investors

slowly slowly collect dividend will make up for its loss?

so drop 50% liao forever neber recover how sia..... keep holding?
drop to 80% keep holding?
drop 90% keep holding?

become super long term cold storage dividend investor?

creative buy at $27 now is $2 no scared?
1 fine day it will recover?

your $100,000k become $8k no scared?