..smart question???

[scalf]

/images/graemlins/blush.gif..why do people buy shares in stocks that pay dividends??

if the company pays out the money to sharholders..the the company is saying it cannot invest the money profitably for more than a short term note...about 2-3 % right now...must be a pretty sh+tty long term prospect company..

jmho

gl /images/graemlins/frown.gif /images/graemlins/diamond.gif

[GeorgeF]

"pretty sh+tty long term prospect company"
You mean like GE and IBM?

Dividends are a sign that company management and labor are willing to share any profits the company have.

Look at amusement park operators Cedar Fair FUN, 6flags PKS and Disny DIS.

[When you look at this graph remember that FUN pays 5% dividend a year now, and 8.5 when I bought it /images/graemlins/smile.gif]

http://finance.yahoo.com/q/bc?s=FUN&t=5y&l=on&z=m&q=l&c=PKS,DIS
(to get the graph to print all 3 stocks correctly you may have to cut/paste the above link)


FUN paid the most dividends and still beat DIS and PKS on capital appreciation. Why? DIS is about investing in Eisner not Disney. PKS spends a ton on advertising and stupid product tie ins like 'spider man' so that the B-school types can pretend they are doing something.

By the way Disney shareholders should be appalled that Eisner is blocking distribution of what is likely to be a very profitable film, Farhenheit 911. The man is an embarasment to both Disney, capitalism and the US. Disney has become a collection of lame amusement park rides and dated comic strips. Having destroyed everything is his path only Miramax surives and is being dismantled as you read this post. Eisner was never more than a front man for Wells, it is that simple.

[BadBoyBenny]

[ QUOTE ]
the company is saying it cannot invest the money profitably for more than a short term note...about 2-3 % right now

[/ QUOTE ]

The company is only saying that they cannot invest the shareholder's money as profitably as the shareholder can (minus the dividend tax rate of course). I don't see how the short term note plays in. If I was a CFO and I thought reinvesting in my business was going to get my shareholders less return than they could get investing elsewhere, like an index fund or something, then I would pay out money in dividends instead of allocating it inefficiently.

There is nothing wrong with owning stock in a mature business that does not require capital investment if they can continue generating cash and giving it back to you.

[adios]

[ QUOTE ]
why do people buy shares in stocks that pay dividends??

[/ QUOTE ]

People would want to buy them when they're undervalued.

[ QUOTE ]
f the company pays out the money to sharholders..the the company is saying it cannot invest the money profitably for more than a short term note

[/ QUOTE ]

Nope not true. First of all Business Development Companies (BDC) and REITs must pay out 90% of their before tax income as dividends. Typically they pay 100 per cent of taxable income. Second of all an investor may be able to make a higher return on the cash received than what the company could make reinvesting the money. Third of all to acheive superior returns one has to take more risk and shareholders may not want to have a company make "risky" investments with profits (at least not all the profits). Fourth of all companies don't grow forever. IMO MSFT is a perfect example. Their capital structure IMO is extremely sub-optimal. What MSFT does with their excess cash is buy short term debt instruments. I could take that money and invest it in SPY and theoretically make a much higher return on my money. In fact IMO MSFT given their de facto monopoly status should leverage themselves. Shareholders basically are owners of the company and thus they are entitled to the profits that are made. Whether or not a company should pay a dividend is a fairly complicated question to answer.

I own all divvy payers right now because I believe they're significantly undervalued not necessarily because they pay dividends.