bstocksdev

I would rather have dividends. What good is a high share price? If you want the money you have to sell them. You are going to get taxed for that. I would rather pay taxes on dividends and have money in my pocket, rather than pack groceries part time just for a high share price.

Interestingly, Allied Capital falls into this category.

Hey, I'm just sayin'.

Beltway Greg

If you are paid dividends it makes it a bit easier for individual investors to just worry less about their holdings which has some value in and of itself- you at least know you can't lose all your money if a company pays a dividend as you get some back. That does reduce your risk a little.

The main reasons I think dividends are better than buysbacks are:

1. Some believe the dividends add some discipline to the companies so that they work harder to be able to pay increased dividends and they put processes in place to insure that will happen. They also avoid making some mistakes like bad acquisitions that could disrupt growth.

2. Dividends bring money back to shareholders while buybacks help those with stock options get more payout. Executive pay is already very high so adding more rewards for the big players may not improve performance as much as dividends which go out to smaller shareholders who work at those companies.

3. Dividends are tax- advantaged now until the Bush tax cuts expire or are extended in some form.

4. Dividends are paid out so wealthy stockholders have to pay some tax as they go along rather than sheltering the money, paying no tax, and then gifting the stocks out to relatives (even if they gift it out to charities the facts are that Uncle Sam ultimately needs a cut). People who oppose the Bush dividend tax cuts and say they just go to the wealthy fail to understand the realities that the dividend cuts generated more money partly because wealthy payers had to pay something instead of nothing. The alternatives are not something or something bigger but something or nothing in many cases.

5. Dividends lend some stability to stock markets and probably make manipulation of stocks a little more difficult. It is true that if things go bad, as with banks, a panic can knock the stocks down regardless of how much they pay out- but dividends from other sectors may help avoid a bigger panic as people hang onto stocks knowing that all of their money won't be lost. Since many investors reinvest their dividends regularly, this money coming into the market on a regular basis, though comparatively small, can help balance outflows. Of course buybacks are also a source of market stability but some announced buybacks never go through and with dividends you do know with more certainty what is happening.

The recent study making small waves focused on dividend growth but other studies have also shown that a high percentage of investor profits come from dividends over time. With the best dividend growers you also have the best growth so it is to be expected that more of the profits you'd get from those stocks would be from growth but the problem is you don't always know that ahead of time. Of course you can find stocks like Coca-Cola that have been stars in this but there are others that have had great dividend growth after a long period of less than stellar payouts- Oneok would be an example- that you could not have known ahead of time would be great one day. (Oil stocks would be another example as many have been able to grow dividends more than they could in the 1990s since the industry fortunes improved after 2000).

An oddity: the greatest investors like John Templeton and Warren Buffett have always said the dividends are not what you want to look at and they placed little value on dividends- partly because of the double tax (before the Bush tax cuts). This may work for them but I have never seen a report of a study that shows anything but better performance for investors from dividends. (This is one reason why we should work to keep the dividend tax cuts-- investors are better off for the most part as companies initiate or raise dividends). A possible drawback for investors who focus too much on dividends is they could find themselves grabbing for stocks that have insecure payouts solely on the size of the dividend-- that, I agree, is a very bad approach.

Dr. Michael Schneider runs several Web sites including http://www.Barrelomoney.com and he writes the Barrel View free weekly e-mailing.

I've always thought that dividends were OK though sometimes I think companies pay dividends when they can't afford them. In that case the money could have been used for a better purpose.